AOL, Time Warner To Merge
January 10size>
America Online, the world's largest provider of Internet access, and Time Warner, the world's largest media and entertainment company, are tying the knot in what would be the biggest corporate merger ever. The companies announced Monday they will merge in an all-stock deal valued at $350 billion, which is likely to have major repercussions for both industries.
The two companies will form AOL Time Warner. AOL's chief executive Steve Case is expected to be chairman and Gerald Levin will be chief executive.
"This is a huge deal that will send shockwaves rippling across the Internet sector, the communications sector and the media sector," Legg Mason Internet strategist Bill Whyman told CBS Radio News.
AOL - the nation's largest online company with some 20 million subscribers - will pay about $166 billion in stock for Time Warner. The new media giant would have combined revenues of over $30 billion.
Calling the merger a "perfect fit," Case told reporters the deal will "bring together the best of both worlds and launch the next internet revolution."
"The true value in this union lies not in what in can do today," Case said, "but in what it will achieve in the future."
The officers of the new company highlighted the company's potential for the creation of new value and new choice for consumers, allowing for new opportunities in entertainment, shopping and communication.
"For me this represents the digital transformation of Time Warner," Levin said.
Case said he asked Levin to be the CEO of the new company because of Levin's experience with the mergers of Time and Warner and the more recent integration of Turner broadcast networks.
"Everybody knows mergers are hard," Case said. "Ultimately it comes down to people."
The announcement came just four months after another blockbuster media merger, the proposed combination of CBS Corp. and Viacom Inc.
The biggest U.S. deal ever is the proposed $122 billion acquisition of Sprint by MCI WorldCom. Worldwide, the biggest pending deal before Monday's announcement was the $150 billion hostile bid for German telecommunications company Mannesmann by Vodafone, the largest mobile phone company.
Go to CBS MarketWatch to find out more about the proposed merger
The deal is subject to certain conditions, including regulatory approvals and the approval of AOL and Time Warner shareholders. The companies said the merger was expected to be finalized by the end of the year.
"It's hard to see how this deal gets blocked by the government," CBS News Legal Consultant Andrew Cohen said, "especially after all these other blockbuster mergers have seemingly sailed through."
Cohen said regulators will give the deal a pass, but will watch he new entity carefully to ensure that no anti-competitive actions are taking place.
AOL Time Warner's brands would include AOL, Time, CNN, CompuServe, Warner Bros., Netscape, Sports Illustrated, People, HBO, ICQ, AOL Instant Messenger, AOL MovieFone, TBS, TNT, Cartoon Network, Digital City, Warner Music Group, Spinner, Winamp, Fortune, AOL.COM, Entertainment Weekly, and Looney Tunes.
Ted Turner, vice chairman of Time Warner, has agreed to back the merger, according to the companies. Turner holds approximately 9 percent of Time Warner's outstanding common stock
Under the deal, Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each of share of Time Warner stock, and AOL shareholders will receive one share of AOL Time Warner stock for each share of America Online stock.
The merger will be effected on a tax-free basis to shareholders, the companies said. When complete, America Online's shareholders will own approximately 55 percent and Time Warner's shareholders will own approximately 45 percent of the new company.
Dulles, Va.-based AOL currently has a market value of about $164 billion. There are some 20 million AOL members and the company offers services in 15 countries and 7 languages.
New York City-based Time Warner's market value is valued at $97 billion. Some 1 billion people have access to CNN, 2.2 million to CompuServe, 35 million to HBO and the company relies on 120 million magazine readers.
"We will take the most remarkable collection of entertainment and put it in the hands of consumers," Time Warner President Richard Parsons said. "This new company is going to define the Internet century."