(Correct final paragraph to show sales were $2.1 billion.)

Sept. 15 (Bloomberg) -- Shares of Time Warner Inc., the world's largest media company, rose as much as 2.4 percent after the New York Post said the company is in talks to sell a stake in America Online to Microsoft Corp.

Microsoft, the world's biggest software company, would pay New York-based Time Warner an unspecified amount of cash for a stake in AOL and combine it with its Internet unit, MSN, the newspaper said, citing two unidentified people familiar with the situation.

Time Warner shares rose 38 cents, or 2.1 percent, to $18.30 in 7:12 a.m. trading on the Inet ATS trading system before markets opened in New York, and earlier rose to $18.35. Microsoft traded at the equivalent of $26.31 in Germany, unchanged from yesterday's close on the Nasdaq Stock Market.

Redmond, Washington-based Microsoft's MSN faces increasing competition from Yahoo! Inc., the most visited Web site, and from Google Inc., the world's most popular Internet search engine, and all three are looking to add features. For Time Warner, selling an AOL stake may help Chief Executive Richard Parsons fend off investor Carl Icahn, who has been buying the company's shares and demanding changes to boost their price.

Time Warner also held negotiations with Sunnyvale, California-based Yahoo and Google, based in Mountain View, California, the Post said. Mike Love, a Microsoft spokesman based in Reading, England, declined to comment, as did Time Warner spokeswoman Mia Carbonell in New York.

Icahn Push

Parsons, 57, yesterday said Time Warner is considering strategies to increase shareholder value, including Icahn's proposals of buying back $20 billion of stock and spinning off the company's cable systems unit. Icahn, who has led investors in purchasing 2.6 percent of the company, on Sept. 12 said he plans to propose nominations to Time Warner's board.

``We have in place a process through which we are carefully reviewing a range of options to increase the value of our company,'' Parsons wrote in an e-mail to employees on Sept. 13.

In his three years leading Time Warner, Parsons has cut net debt to $13 billion, sold a music unit, returned AOL to profit and settled a Securities and Exchange Commission probe.

He is now planning a $5 billion share buyback over two years and intends to sell 16 percent of his cable unit in an initial public offering next year, when the company closes its purchase of Adelphia Communications Corp. assets.

In the second quarter, sales fell 4 percent to $2.1 billion in Time Warner's online unit as subscriptions declined. AOL ended the period with 20.8 million customers.

To contact the reporter on this story: Rebecca Barr in New York at rbarr1@bloomberg.net.

Last Updated: September 15, 2005 07:49 EDT