NEW YORK (Bloomberg) - Time Warner Inc. CEO Jeffrey Bewkes, who took the helm of the world's largest media company on January 1, left open the possibility of a merger for its AOL Internet unit.

"It's our obligation to get AOL into the strongest combination and fit," Mr. Bewkes said yesterday at the Bear Stearns Cos. conference in Palm Beach, Florida. Time Warner cannot rule out a transaction that would make AOL more valuable, he said.

Yahoo! Inc., fighting Microsoft Corp.'s $44.6 billion takeover bid, has held talks with AOL, a person familiar with the discussions said last week. Mr. Bewkes, who has pushed free e-mail and web security since 2006 to increase advertising sales, is separating AOL's ad business from its shrinking Web-access division. The split gives each more flexibility, he said yesterday.

AOL, an online pioneer created in 1985, has not attracted enough visitors and advertising to make up for the declining Internet dial-up business, leading to a 32 percent drop in fourth-quarter revenue.

Mr. Bewkes also reiterated that Time Warner may sell more of its cable-TV systems unit.

The cable business, which is currently 84 percent owned by Time Warner, may be better off as a standalone company, with its own balance sheet and a separate capital structure, he said.

"It doesn't matter whether Time Warner as a conglomerate is larger or smaller," he told investors. "It matters that the return on capital is high."

Time Warner gained 37 cents to $14.84 at 4.15pm in New York Stock Exchange composite trading. The New York-based company has fallen 10 percent this year.