Time Warner, the media giant has agreed to pay $2.4bn to shareholders, to settle a legal dispute over its merger with AOL in 2001.

The lawsuit alleged that the AOL unit had exaggerated revenues to make the merger more attractive.

In the second quarter, Time Warner posted a $321m loss.

In the early days, AOL was the top dog in the merged company, having "bought" the company with its highly rated shares. The same stock, that the shareholders alleged had been ramped by overstated revenues.

An additional $600m has been set aside by Time Warner for any further settlements.

Richard Parsons, Time Warner's chairman and chief executive, commented in a statemeent "We're aiming to avoid the costs, risks and distractions of protracted litigation," He added, "Even after considering the reserve, our balance sheet remains strong."

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