Wall Street Journal online - January 10, 2000
Time Warner, AOL to Merge, Forming a Multimedia Giant
AOL Now Gets Access to Speedy Cable Lines; Time Warner Shares Surge in Early Trading
By PETER GUMBEL Staff Reporter of THE WALL STREET JOURNAL
LOS ANGELES -- Media and entertainment giant Time Warner Inc. and No. 1 online-service provider America Online Inc. agreed to merge in a stock transaction valued at about $166 billion plus $17.8 billion in Time Warner debt.
The combined firm would be renamed AOL Time Warner Inc. Time Warner shareholders would receive 1.5 shares of AOL Time Warner for each share they own, while AOL shareholders would receive one share of the new entity for each share they own.
Those terms give a significant premium to Time Warner shareholders. As a result, Time Warner shares skyrocketed in premarket trading early Monday. The shares were quoted at $101, up 56% from Friday's 4 p.m. New York Stock Exchange close of $64.75. Meanwhile, AOL was quoted at $79.50, up from Friday's Nasdaq Stock Market close of $73.75.
AOL shareholders would own about 55% of the combined firm and Time Warner shareholders would own approximately 45%; the new firm would have a combined value of about $350 billion, the companies said. The stock would be traded under the symbol AOL on the New York Stock Exchange, the companies said.
Case to Be Chairman; Levin CEO
AOL Chief Executive Steve Case is to be named chairman of the merged company, while Time Warner Chairman and Chief Executive Gerald Levin would be CEO. Ted Turner, currently vice chairman of Time Warner, would continue in that capacity at the merged firm.
The companies said Mr. Turner has agreed to vote his Time Warner shares, representing about 9% of the company's outstanding common stock, in favor of the merger.
AOL, which has more than 19 million subscribers, has a current market capitalization of about $164 billion, while Time Warner has a market capitalization of $83 billion.
By uniting a major media conglomerate with a leading Internet company, the transaction is likely to have major repercussions on both industries. It comes at a time when many big media companies are struggling to figure out how to harness the power of the Internet, and when Internet companies are increasingly looking to put entertainment and other content on their Web sites to attract more customers.
Meanwhile, Time Warner has been trying to build Internet "hubs" that focus on entertainment and news and created a high-speed Internet service called Road Runner.
AOL, which has over 20 million Internet-access subscribers, has been sparring recently with Time Warner over the issue of cable-TV companies allowing access to their high-speed lines into consumers' homes to Internet service providers.
Time Warner's businesses include Time magazine, Warner Bros. movie studio, Warner Music Group, the HBO cable channel, Time Warner Cable, Time Warner Telecom, Warner Books and the WB television network.
Both companies also have been busy with various deals recently.
Time Warner reportedly is interested in buying General Electric Corp.'s NBC television network for $25 billion. General Electric and Time Warner denied they have talked.
Time Warner's Troubles
Time Warner squandered an early online lead as its Pathfinder portal site failed to find its way -- one executive referred to it as a financial "black hole." The company has had more success with its CNN family of sites, including CNN.com and CNNfn.com, and Time Warner has recently launched new online ventures.
Last month in its latest move to expand investments in new media, Time Warner said it established a $500 million fund for digital-media investments, with half of the fund made up of cash and the other half in promotional time on Time Warner's media outlets. The fund will focus Time Warner's investment efforts through the Time Warner Digital Media unit established last year.
Late last year, AOL agreed to acquire digital-map company MapQuest.com Inc. for about $1.1 billion in stock.
AOL, meanwhile, has undertaken a broad campaign dubbed "AOL Anywhere" to extend elements of its flagship service beyond the confines of personal computers. MapQuest will fit neatly into this strategy, since it has partnerships with Nokia Corp. and Sprint Corp. to deliver travel directions to users of Internet-enabled phones. MapQuest is also developing a service that uses telephones to verbally dictate-driving instructions to users. Now AOL will be part of those ventures.
Marketing Alliances to Be Expanded
Separate from the merger transaction, America Online and Time Warner also announced new marketing, commerce, content and promotional agreements that will immediately expand various relationships already in place between the two companies. Some of the agreements include:
* The AOL service will feature Time Warner's InStyle magazine, expanding on the content Time Warner already offers AOL members from other magazines.
* CNN.com and Entertaindom.com programming will be featured prominently on various America Online services.
* AOL members will have access to a wide range of Time Warner promotional music clips from Time Warner artists.
* Time Warner and AOL MovieFone will participate in online-offline cross-promotion of Time Warner movies and related content, including live events.
* Broadband CNN news content will be distributed on AOL Plus, the rich media content offering designed for AOL members connecting via broadband, when it launches this spring.