Time Warner, AOL tie up

WASHINGTON, Jan 11: The biggest corporate merger ever between America Online and Time Warner took the corporate world by storm and sent stock prices soaring to new records, reports AFP.

The two firms valued the combined entity - the first mega-merger of the new century - at 350 billion dollars, but at yesterday's closing stock prices the transaction could be worth close to 200 billion dollars.

The new group, to be called AOL Time Warner, aims to revolutionise the way people obtain information and communicate, the companies said yesterday.

The merger will create "the first global media and communications company of the Internet century," said AOL chairman Steve Case, who will become chairman of the new entity.

"This is the first time a major Internet company has combined with a major media company."

The new entity, with annual revenues of more than 30 billion dollars, will control brands such as AOL, Time, CNN, CompuServe, Warner Bros and Netscape.

It combines AOL, the biggest Internet company, with media-entertainment leader Time Warner, with holdings in television, film and publishing.

Case said the merger would capitalise on the explosion of the Internet and lead to further innovation and "launch the next Internet revolution."

America Online shareholders will end up owning 55 per cent of the new empire, with 45 per cent for Time Warner.

"By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained," a joint statement said.

News of the merger pulled the markets higher Monday, with the high-tech heavy Nasdaq ending the day up 167.05 points, or 4.30 per cent, at 4,049.67. Wall Street's key index, the Dow Jones Industrial Average, ended up 49.64 points, or 0.43 per cent, closing at 11,572.20, its second consecutive record.

The transaction itself, a stock swap deal, was estimated at 155 billion dollars based on Friday closing prices of Time Warner and AOL, but after Monday's increase in the value of the shares the merger could rise to 191 billion dollars.

Pre-merger market capitalisation has been estimated at 164 billion dollars for AOL, and 83 billion dollars for Time Warner.

The merger agreement was definitive and had been agreed to unanimously by the boards of each company.

The chief executive of the merged company will be Gerald Levin, Time Warner chairman and chief executive.

"These two companies are a natural fit," Levin told a joint press conference with Case, adding that the merger "completes the digital transformation of Time Warner."

PaineWebber technology analyst Chris Dixon told CNBC the merger is expected to produce a company valued at 450 to 500 billion dollars.

"The key thing to look to is the extraordinary reach this company will have," Dixon said.

AOL chief financial officer Mike Kelley said he expects up to one billion dollars in cost savings by the end of next year, and for revenues to grow to as much as 40 billion dollars in 2001.

Kelley said he expects savings from lower overheads and technology costs as well as from combining the two companies' advertising sales force.

Analysts noted the estimate could be conservative, adding that the deal would also present new opportunities for marketing agreements as well as lower its own advertising and promotion costs.

Observers predicted no major regulatory hurdles, but said the deal would have to be reviewed for several months by authorities in the United States and Europe.