Time Warner's board of directors are expected to make the final decision during a Thursday morning board meeting. Industry blog TechCrunch broke the story on Wednesday, citing "sources close to AOL." Time Warner and AOL representatives had no comment regarding the news on Wednesday.
Late last month, Time Warner revealed preliminary plans to purge AOL in a regulatory filing, going so far as to separate AOL on its first-quarter earnings release.
"We're ... working to determine the right ownership structure for AOL," Time Warner head Jeff Bewkes said in the earnings release itself.
The question remains whether AOL's dial-up Internet service will be separated from the new AOL, or if it will remain part of the package. AOL's ad sales dropped 20% in first the quarter -- or $109 million -- which surpassed the 18% decline in the fourth quarter.
"Driving the decrease in advertising revenues were declines in sales of advertising on third-party Internet sites, as well as display advertising and paid-search advertising on AOL Network sites," read the Time Warner earnings report.
Time Warner is also in talks to buy back Google's 5% stake in AOL. Google, which has owned the stake since investing $1 billion in 2005, notified Time Warner in January that it was exercising a right to force Time Warner to take the Internet unit public, or buy back the stake.
Time Warner said in late April that it has the right, but not the obligation, to buy Google's interest with cash or shares.
In February, Bewkes explicitly said that spinning off all or part of AOL was a viable option for the New York-based company.
Seen as preparing for a spinoff, Bewkes recently hired Google executive Tim Armstrong as the unit's chairman and chief executive, while also revising debt agreements that threatened to restrict the transfer of its assets.
In March, an AOL insider told respected industry blogger Kara Swisher that Armstrong "would not have taken the job if the plans for a spin out of AOL were not in place ... The only catch is the poor economy, but even that should not prevent Time Warner from doing what's right to finally fix AOL."