TIME WARNER, the media group behind Warner Brothers and AOL, is to more than double the scale of its share buyback programme in an attempt to head off criticism from Carl Icahn, the activist investor.

The company will repurchase $12.5 billion (£7 billion) of shares during the next 21 months, an increase from the $5 billion originally earmarked, but not as much as the $20 billion that the billionaire rebel investor had called for.

Nevertheless, the shares rose 2 per cent after the announcement of the buyback, which reflects an improving balance sheet at the once debt-laden conglomerate. Borrowings, more than $30 billion three years ago, were down to $12.4 billion in the third quarter.

Richard Parsons, chairman and chief executive, said that the company had the capacity to expand the buyback programme “while still having the resources to invest meaningfully in future growth” — code for acquisitions.

He confirmed that the company was “engaged in a series of exploratory discussions involving AOL with a number of strategic partners” — whose ranks are thought to include Google, Microsoft and Comcast. Describing the situation as “fluid”, Mr Parsons insisted that a deal would not necessarily result. “We can get there on our own,” he said.

AOL has been under pressure since its merger with Time Warner. The operation has been struggling as its profitable base of dial-up internet subscribers has been eroded in the broadband era, although it is trying to develop an internet portal strategy along the lines of Yahoo! to compensate.

In the third quarter, AOL revenues declined 5 per cent to $2 billion, on the back of a 10 per cent fall in subscriber revenues to $1.66 billion, which more than erased a 28 per cent increase in advertising to $328 million. However, cost control helped to keep operating income at the business up 16 per cent at $302 million.

Time Warner’s cable, TV and magazine businesses had strong quarters, all recording double-digit growth. Television profits were up 22 per cent at $699 million, helped by syndication sales of Sex and the City, the HBO programme, and higher ad rates at key channels.

That helped the group overall to a 60 per cent rise in operating income to $1.8 billion, although some of the benefit arises from an absence of $500 million of legal charges that hit the group this time last year. Revenue rose 6 per cent to $10.5 billion. The shares rose 2 per cent to $17.91 in afternoon trading in New York.

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