Time Warner Inc Chief Executive Jeffrey Bewkes said on Friday that his company is still leaning toward spinning off AOL to shareholders as the preferred method for divesting the struggling Internet unit.

Bewkes said forms of separation being considered include a split-off, spin-off or a combination.

A spin-off would see Time Warner distribute the stock it owns in AOL on a pro rata basis to its shareholders, similar to a dividend distribution.

As widely expected, Time Warner confirmed on Thursday that it would separate AOL as an independent, publicly traded company.

Bewkes told Sanford Bernstein's Strategic Decisions Conference on Friday that AOL will be setting up its own board and other requirements for a public company over the next six months in time to complete the separation.

He said it is possible that company takes on some debt once it gets spun off, depending on the planned capital structure and the assets that remain with the independent business.

It has pretty healthy cash flow so theoretically it could support some debt if that looked advisable once the final structure is settled, said Bewkes.

Wall Street had long speculated that Time Warner would break up AOL into its advertising and content unit and its dial-up Internet access unit ahead of a separation.

AOL's dial-up Internet access, once the primary way Americans connected to the Internet, is now a shrinking business as most subscribers have dropped it for faster services from phone and cable companies.

But Bewkes said his management had decided that it was more efficient to spin off the company as one unit rather than go through a break-up process.

It wasn't a good use of time and distracts too much not only the management but probably our business partners, said Bewkes. It wasn't as important as getting the management out in one piece.

Media conglomerate Time Warner owns major media brands like cable networks CNN and TNT, as well Hollywood studio Warner Bros. After spinning off Time Warner Cable in March it became more focused on its content businesses which also includes publishing unit Time Inc.

Time Warner, like other media companies, has been hit by the economic recession which has badly hurt the global advertising sector. Last quarter, Time Warner's management said the 2009 profit outlook was for flat growth.

Bewkes said the difficult market conditions had stabilized for his company.

We're feeling relatively good in the media sector compared to our competitors, said Bewkes.

(Reporting by Yinka Adegoke; Editing by Tim Dobbyn)

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