updated 3/29/2006 4:51:20 PM ET 2006-03-29T21:51:20

Google Inc. said Wednesday that it has ironed out the final details of its expanded alliance with America Online, clearing the way for the online search engine leader to invest $1 billion in its biggest advertising partner.

The two companies signed a March 24 definitive agreement to seal a deal originally announced in December, according to Securities and Exchange Commission documents filed Google.

The Mountain View, Calif.-based company will assume a 5 percent stake in Time Warner Inc.’s AOL in exchange for a $1 billion investment expected to be made some time during the three months ending in June.

AOL also will get a $300 million credit to advertise its products and services through Google’s vast advertising network. Google, in turn, is depending on AOL to sell more graphical ads to help diversify its search engine beyond the text-based ads that generate most of the company’s profits.

The deal also gives Google the right to demand that AOL be spun off as a publicly traded company beginning in mid-2008, according to previously filed SEC documents.

Google’s investment in AOL rebuffed a rival bid Microsoft Corp., which has been trying to build a formidable advertising network of its own.

AOL has been Google’s biggest advertising partner for several years. In 2005, AOL accounted for $550 million, or 9 percent, of Google’s total revenue.

Google’s shares surged $17.78, or 4.7 percent, to close at $394.98 on the Nasdaq Stock Market. The company’s stock price has climbed by 15.5 percent during the last four trading sessions as money managers adjust their investment portfolios to account for Google’s inclusion in the bellwether Standard & Poor’s 500 index after the markets close Friday.

Time Warner shares rose 5 cents to close at $16.79 on the New York Stock Exchange.

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