Time Warner Inc. will set aside $3 billion in reserves for shareholder lawsuits over the AOL merger, and in a separate announcement, plaintiff lawyers said that accounting firm Ernst & Young, the company's auditor, has agreed to contribute another $100 million.

Shareholders have claimed they were cheated in the merger by inflated revenues and improper accounting at AOL, while company executives have argued that the burst of the Internet stock bubble led to the change in fortunes.

When the merger was announced in January 2000, the two companies were valued at more than $300 billion. Time Warner, which dropped AOL from its name last year, is valued at around $80 billion today.

The lead plaintiffs in the lawsuit (representing claims of $2.4 billion) said that shareholders who bought stock in AOL or Time Warner between January 1999 and August 2002 will receive compensation once the deal is approved in court.

Time Warner admitted no wrongdoing and has settled previous similar claims with the Department of Justice and the Securities and Exchange Commission for $150 million and $300 million, respectively. In a statement, the company said that it hoped those funds would be directed to shareholders. Time Warner must still set aside another $600 million for remaining lawsuits. Time Warner also said that it would buy back $5 billion of its shares in the next two years as a way to boost its share price.

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