AOL is buying Time Warner
$166 billion stock deal would be record merger

Published: Monday, Jan. 10 2000 12:00 a.m. MST

NEW YORK -- Time Warner, the world's largest media and entertainment company, is being acquired by America Online for about $166 billion in stock in what would be the biggest corporate merger ever.

The merger announced Monday marks the biggest bet yet that the Internet will be one of the most dominant features in the media landscape of the future."This merger will launch the next Internet revolution," America Online's chairman and chief executive, Steve Case, said at a news conference.

"This really completes the digital transformation of Time Warner," Time Warner's chairman, Gerald Levin, said this morning. "These two companies are a natural fit."

At a time when traditional media companies are struggling to reinvent their Internet strategies, the merger would give Time Warner a huge and powerful platform for reaching people online. AOL is the nation's largest online company with some 20 million subscribers.

The deal also gives AOL a key tool for distributing its services: access to Time Warner's large cable network system, the nation's second largest after AT&T's with 13 million cable subscribers.

"It makes a lot of sense," said Tom Wolzien, a media analyst at Sanford C. Bernstein & Co. "AOL provides a huge platform for all of Time Warner's content, and Time Warner's cable systems provide a good network for AOL's online services."

Time Warner's large list of media properties includes CNN, HBO, Time, People and Sports Illustrated magazines, and the Warner Bros. movie, TV and music properties.

The deal also raises the stakes in the consolidation scramble in the media industry and comes just four months after another blockbuster media merger, the proposed combination of CBS Corp. and Viacom Inc.

The deal values Time Warner at about $110 a share, a rich premium of 71 percent over its price of $64.75 a share late Friday. Time Warner shares soared after the news was announced, trading at $94.683/4, up $29.933/4, or by 46 percent, on the New York Stock Exchange by this afternoon. And in a sign that investors feel the deal is a good one for AOL, that company's shares rose $1.75 to $75.50, also on the NYSE.

Other Internet and entertainment stocks also got a lift on anticipation of other deals. Among them, Walt Disney jumped $3.871/2 to $35 by this afternoon on the NYSE, while Lycos leaped $5.311/4 to $76.061/4 and Yahoo! climbed $28.683/4 to $435.621/2 on the Nasdaq Stock Market.

Time Warner was created by the 1990 merger of Warner Communications Inc. and Time Inc. Time magazine was launched in 1923 by two Yale students, Henry Luce and Briton Hadden, and Warner Bros. was incorporated about the same time.

America Online was founded in 1985 and has more than four times the net profit of Time Warner, earning $762 million in the fiscal year that ended June 30, even though Time Warner's revenues of $26.8 billion dwarf AOL's $4.8 billion.

AOL shareholders would own 55 percent of the combined company, which will be called AOL Time Warner Inc. Time Warner shareholders will own the rest. AOL and Time Warner would each name half of the board of directors of the new company.

Case would be chairman and Time Warner's Levin would be chief executive. Case said he first approached Levin about a possible combination in October.

The new media giant would have combined annual revenue of over $30 billion.

The biggest U.S. deal ever before today is the proposed $122 billion acquisition of Sprint by MCI WorldCom. Worldwide, the biggest pending deal was the $150 billion hostile bid for German telecommunications company Mannesmann by Vodafone, the largest mobile phone company.

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