Time Warner (NYSE:TWX) can't seem to shake some observers' ongoing fascination with the possibility of an AOL spinoff. However, investors don't seem to share such enthusiasm for this rehashed idea.

Late last week, an analyst at UBS initiated Time Warner with a "buy" rating and a $25 price target, emphasizing that the media conglomerate might spin off a piece of the AOL unit, or perhaps merge it with another Internet company, this year. The analyst described such an event as a "key catalyst" for Time Warner shares.

Sure, something like this could happen. Google (NASDAQ:GOOG) took a pricey position in AOL in late 2005, and Time Warner has previously said that it might consider such a strategy.

However, more recent events strongly suggest that Time Warner wants to keep AOL. If nothing else, the company has flatly denied any interest in spinning the company off. In recent analyst conferences, Time Warner management has spent too much time describing how AOL fits into the company's overall business strategy to give spinoff rumors much credence. There's still potential in the AOL business, and cutting it loose might be premature, even if many of its former customers have outgrown its "Internet with training wheels" offerings.

An old adage states: "Buy on the rumor, sell on the news." Lots of investors seem to do so, but in the case of short-term silliness like this, it strikes me as a (small-f) foolish move. Time Warner shares' failure to respond to the UBS analyst's speculation probably suggests that investors have tired of this rumor, and remain well aware of the company's many reasons for keeping AOL around. The Internet is a prime source of growth, and if Time Warner plays its cards right, AOL could play an important role in its online strategy.

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Alyce Lomax does not own shares of any of the companies mentioned.