Struggling Internet company AOL Inc. (AOL) has confirmed that it is selling its social networking platform, Bebo Inc., to an affiliate of turnaround specialist Criterion Capital Partners, LLC. AOL did not disclose the terms of the deal.

According to The Wall Street Journal, which cited sources familiar with the development, AOL is likely to receive only a small fraction of the $850 million it paid to acquire Bebo. AOL stated that it will treat Bebo’s stock as worthless for income tax purposes, and its current income tax basis in Bebo is about $750 million. AOL also declared that it expects to record a deferred tax asset and corresponding benefit of $275 million to $325 million in its tax provision during the second quarter of 2010.

AOL bought Bebo two years back in March 2008 in an all cash deal, which was then one of the largest social networking sites in Britain. San Francisco-based Bebo has offices in Austin, Texas and the U.K., and operates sites in the US, UK, Ireland, Australia, New Zealand, Canada, Poland, France, Germany, Italy, Spain, India and the Netherlands.

The sell-off is part of AOL’s strategy to restructure operations since the completion of its spinoff from Time Warner Inc. (TWX) in December of last year. The company is also striving to compete more effectively with formidable rivals, such as Google (GOOG), Yahoo! Inc. (YHOO) and Microsoft Corp. (MSFT) in the estimated $29 billion U.S. online advertising market.

In January this year, AOL stated its intention to lay off up to 1,200 employees as part of its previously announced program to reduce workforce by 2,300 positions. During the first quarter of 2010, the company significantly reduced operations in France and Germany and shuttered offices in several other countries. The restructuring initiatives helped the company post earnings of 77 cents per share in the first quarter, which topped the Zacks Consensus Estimate by 13 cents, or 20.3%.
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