AOL and Time Warner To Merge in Blockbuster Deal

In what some observers are labeling the deal of the century, media giant Time Warner and number one online service provider America Online announced a stock-for-stock merger today that is expected to be valued at $350 billion (US$).

Under the monster merger, AOL will gain access to Time Warner’s broadband assets, while Time Warner’s media properties will immediately gain an online audience that is 20 million people strong. The new company will have combined revenues of more than $30 billion.

AOL chief Steve Case will be named chairman of the new company — to be named AOL Time Warner, Inc. — and Time Warner’s Chairman and Chief Executive Gerald Levin will be its new CEO.

AOL Shareholders Own Majority Stake

When completed, AOL shareholders will own a majority stake with approximately 55 percent, and Time Warner will own about 45 percent of the new company. The company will continue to be traded under the AOL symbol on the New York Stock Exchange.

The Dulles, Virginia-based AOL currently has a market capitalization twice that of New York-based Time Warner.

“This is a historic moment in which new media has truly come of age,” said Case. “We’ve always said that America Online’s mission to make the Internet as central to people’s lives as the telephone and television, and even more valuable, and this is a once-in-a-lifetime opportunity to turn this promise into reality.”

“We’re kicking off the new century with a unique new company that has unparalleled assets and the ability to have a profoundly positive impact on society,” Case added. “By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained — providing far-reaching benefits to our customers and shareholders.”

Levin agreed. “This strategic combination with AOL accelerates the digital transformation of Time Warner by giving our creative and content businesses the widest possible canvas,” he said. “The digital revolution has already begun to create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression. AOL Time Warner will lead this transformation, improving the lives of consumers worldwide.”

Merger Will Change E-Commerce And Media Landscape

While the full implications of uniting the two media titans has yet to be realized, it comes at a time when such companies are struggling to define themselves in a merging world of multimedia, e-commerce and the Internet.

Many industry observers have felt that AOL’s lack of high-speed Internet assets amounted to an Achilles heel in its battle for online dominance with major rival Microsoft Corp. However, as a result of the merger, AOL will acquire substantial broadband access, which can only serve to strengthen its overall market position.

While it is still too early to gauge the merger’s impact on e-commerce, there is no question that it will be enormous. Because AOL Time Warner will obviously want to merge access to the Internet as part of its cable TV services, it is highly likely the new company will try to tilt access to favored e-commerce sites through high profile positioning on its Internet portal.

Still, the deal has to get past government regulators and no one would be surprised if Microsoft and other potential competitors object to the deal.

Besides broadband capacity, AOL will also gain access to other Time Warner businesses, including the Warner Brothers studio, Warner Music Group, the HBO cable channel, Time Warner Telecom, Warner Books, WB television Network and Time magazine.

Aggressive Deal Makers

In the recent past, both companies have been aggressive dealmakers. For instance, rumors abound that Time Warner has been trying to buy General Electric’s NBC television network for $25 billion.

At the end of last year, AOL acquired digital map company Mapquest.com, Inc. for about $1.1 billion in stock. A few weeks ago, it also forged a huge marketing partnership with giant brick-and-mortar retailer Wal-Mart Stores.

Additionally, as part of its “AOL Anywhere” campaign, the company has formed partnerships with Nokia Corp. and Sprint Corp. to provide travel directions to users of portable phones and other handheld devices.

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