2/12/2011

AOL and Time Warner to merge - Jan.

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Thats AOL folksJa nua ry 10, 2000: 5:26 p.m . ET

Internet leader and entertainment firm to join forces;
new company worth $350B
By Staff Writer Tom JohnsonNEW YORK (CNNfn) - In a stunning
development, America Online Inc. announced plans to acquire
Time Warner Inc. for roughly $182 billion in stock and debt
Monday, creating a digital media powerhouse with the
potential to reach every American in one form or another.
With dominating positions in the music, publishing, news,
entertainment, cable and Internet industries, the combined
company, called AOL Time Warner, will boast unrivaled
assets among other media and online companies.
The merger, the largest deal in history, combines the
nations top internet service provider with the worlds top
media conglomerate. The deal also validates the Internets role as a leader in the new world economy,
while redefining what the next generation of digital-based leaders will look like.
"Together, they represent an unprecedented powerhouse, said Scott Ehrens, a media analyst with
Bear Stearns. "If their mantra is content, this alliance is unbeatable. Now they have this great platform they
can cross-fertilize with content and redistribute.

Click here to listen to the AOL/Time Warner press conference announcing the merger

The deal, if approved, calls for Time Warner shareholders to receive 1.5 shares of the new company for
every share of Time Warner stock they own. AOL shareholders will receive one share of the new company
for every AOL share they hold.
The new company will be 55 percent owned by AOL and 45 percent owned by Time Warner. The
combination will immediately boast a market capitalization of $350 billion and an annual revenue stream
topping $30 billion.
More importantly, it provides AOL, which already boasts more than 20 million subscribers through its
AOL and Compuserve Internet services, high-speed broadband access to Time Warners more than 13
million cable subscribers, further reinforcing its position as the nations top online provider.

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In return, Time Warner -- parent company of a broad range of media outlets, including Warner Bros.
Studios, HBO, CNN, Warner Music, Time magazine and CNNfn.com -- gains a powerful national and
growing international platform upon which to distribute and promote its sizable products.
"I dont think this is too much to say this really is a historic merger; a time when weve transformed
the landscape of media and the Internet, said Steve Case, AOLs chairman and chief executive
officer. "AOL-Time Warner will offer an incomparable portfolio of global brands that encompass the full
spectrum of media and content. (508K WAV)(508K AIFF).
In fact, Case said its hard to imagine a home in the United States that is not touched by Time Warner
or AOL in some way, be it television, movies, music or the Internet.
Analysts noted the deal also represents a fundamental shift in not only how content providers will be
structured in the new digital economy, but how online companies are valued in the future.
The deal is significant in that although AOL -- a company formed by Case after he grew tired of
developing new pizzas for Pizza Hut -- just recently began turning a profit, it boasted a much higher market
capitalization than Time Warner, formed exactly 10 years ago through the merger of Time Inc. and Warner
Communications.
So while Time Warner will initially provide roughly 70 percent of the combined companys profit
stream, AOL actually will control a greater stake of its stock because of how highly Wall Street values the
growth potential of the Internet.
"Todays announcement really does change the tectonic plates in this world, said Christopher
Dixon, media analyst with PaineWebber.
"This really underscores the strength of the Internet, he said. "The Internet is here and its no longer
just about techs. Its about broadband, its about streaming video, its about streaming music and
its about coming up with all kinds of ways to use your computer in a very TV-like experience.

A digital media giant

The offer from AOL, which entered Monday with a market value of more than $163 billion, values Time
Warner at $164.75 billion, about double the companys $83 billion market capitalization at the close of
market trading Friday.
When roughly $17.2 billion in Time Warner debt is added to the equity value, the $181.95 billion offer
ranks as the most expensive buyout in corporate history, far surpassing Vodaphone Airtouchs $148.6
billion cash and stock offer for Mannesmann late last year.
Time Warner (TWX) shares soared on the news, climbing as high as 102 Monday before settling in up
23-3/8 at 93-1/8 by mid-afternoon.
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AOL (AOL) shareholders provided a more mixed reaction, bouncing the stock from positive to negative
territory all day. By mid-afternoon, AOL shares lost 3/8 to 73-3/8.
The deal also pushed several other media and technology companies shares up, as investors began
guessing where the next mega-deal might take place.
"How youre delivering content and what youre doing to reach your customers, thats changing
daily, and I think it would be foolish not to expect a lot more merger activity going forward, Doug
Cliggott, a technology analyst with J.P. Morgan, told CNN. (508K WAV)(508K AIFF).
Time Warner boss Gerald Levin is slated to become chief executive of the new company, while Case,
who said he first approached Levin about such a merger in October, will serve as its chairman.
The companies said both boards already voted unanimously in favor of the deal, which company
officials hope to finalize by the end of the year.
Ted Turner, Time Warners vice chairman, will serve in the same capacity in the new company. Turner,
who currently controls 9 percent of Time Warners stock, has agreed to vote in favor of the deal. (508K
WAV)(508K AIFF).
While some experts speculated it may be difficult for Time Warner and AOL to merge their corporate
cultures, Case, Turner and Levin expressed confidence they can overcome any obstacles.
Wearing a tweed jacket without a tie, the normally button-down Levin even joked about the different
cultures. "It gives me great pleasure to welcome the suits from Virginia here to New York.
Case, wearing a dark suit, said the areas of responsibility are clear.
"Gerry and I worked out very early what our relative responsibilities will be, Case said. "Ill focus
more on the strategic issues, Ill manage the board, Ill focus on policy issues, Ill focus on technology
issues, Ill focus on investments, Ill focus on philanthropy, the things that I said at the beginning I think I
do well and I really care about. Hell be CEO running the company.

graphic

A Time Warner source said the two sides entered serious negotiations about two weeks ago before
striking a deal over the weekend at Cravath, Swaine & Moore, Time Warner's law firm.
Neither side expects significant regulatory opposition to the deal, although each municipality served by
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Time Warners cable system will have to approve the deal because there is a change in ownership.
Analysts did question how regulators would view any attempts by Time Warner to give AOL exclusive
access to its cable lines, but press officials from the Federal Communications Commission, U.S.
Department of Justice and Federal Trade Commission all declined comment on the deal.
graphic

Company officials emphasized the deals ability to accelerate the combined companys revenue
stream while generating significant efficiencies on the advertising and marketing end.
"So to me, I saw the power of that combination and as I looked around and looked at other companies
and other opportunities, it really came down to theres only one combination, Levin said. "So I
concluded that either we would do something with AOL or we would build ourselves, but this is infinitely
preferable. (508K WAV)(508K AIFF).
AOL Chief Financial Officer J. Michael Kelly said the company would generate annual revenue of $40
billion in its first full year of operation, while achieving $1 billion in "EBITA (earnings before interest and tax
appreciation) synergies.
To highlight the point, AOL and Time Warner also announced several joint initiatives Monday.
AOL will now feature Time Warners CNN.com, Entertaindom.com and InStyle magazine content on
its service in addition to providing access to a wide range of Time Warner promotional clips.
In exchange, Time Warner plans to make a number of promotional offers available to only AOL
members in addition to dramatically expanding the cross-promotion of AOL in a number of its offline
media properties.
Analysts said the merger could immediately plant the seeds for future mega-deals among media
companies and a growing number of online service providers.
"This is the first major combination of an online company and a bricks-and-mortar media company,
said Ben Rogoff, manager of Aberdeen Asset Managements technology fund in London, which has
more than 1 billion pounds ($1.6 billion) in assets, and holds America Online stock. "Its the deal that
everyone will have to follow.
Ehrens said the company most likely to deal next is Yahoo! Inc. (YHOO), which draws more than 35
million visitors to its site each month, offering media firms unparalleled access to the online world.
Microsoft Corp. (MSFT) also will feel some heat from this deal as it struggles to encompass significant
media content into its range of technology products.
"If Microsoft really wants to be a player in the media space, they are going to have to respond Ehrens
said. "This [deal] just pushes AOL/Time Warner into the stratosphere ahead of them.

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2007 Cable News Network LP, LLP.

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