AOL and Time Warner OK biggest merger ever

$179.1 billion deal to consolidate media, Internet industries

Bugs Bunny, Time and CNN

Stockholder and federal approval are still required

January 11, 2000|By Mark Ribbing and Bill Atkinson | Mark Ribbing and Bill Atkinson,SUN STAFF

America Online Inc., the largest Internet-access company in the world, said yesterday that it has agreed to buy news and entertainment giant Time Warner Inc. If the stunning $179.1 billion deal is approved, it will be the biggest corporate acquisition in history.

It would also mark the biggest step in the rapid consolidation of the Internet, communications and media industries. The new company, to be called AOL Time Warner Inc., would have 22 million Internet subscribers, $30 billion in revenue and some of the most lucrative and widely recognized icons of American culture, ranging from CNN to Time magazine to Bugs Bunny.

"This is the first time a major Internet company has combined with a major media company, and the possibilities are truly endless," said Steve Case, AOL's chairman and chief executive officer, who would be chairman of the new company.

The two companies took pains to present the transaction as a "merger of equals," but AOL is in the driver's seat. Case, who proposed the deal to Time Warner Chairman and Chief Executive Officer Gerald M. Levin in October, would engineer the broad direction of the company. Levin would become the chief executive officer of AOL Time Warner and steward of day-to-day operations.

AOL's shareholders would own about 55 percent of the company. The company's headquarters would be in AOL's hometown of Dulles, Va., and Time Warner's base in New York. No job cuts are expected. That a relative upstart like AOL -- which was founded in 1985 and became known to most Americans only in the past couple of years -- could assume control of a media company as prominent and entrenched as Time Warner may be another sign of how radically the Internetis altering the economic order.

"AOL had a model. They want to be as central to individuals' lives as the telephone and television. They will have taken a giant step forward with their acquisition to accomplishing that," said Frederic H. Dickson, an analyst with Branch Cabell & Co. in Richmond, Va.

A bigger audience

The proposal would give each company a bigger audience for its products and services, and that bigger audience would translate into bigger money: from subscribers, from viewers and, above all, from advertisers who seek to place their messages in front of as many people as possible.

For AOL, the purchase of Time Warner would mean access to a rich vein of news and entertainment material, including that of Warner Bros. studios and Warner Music Group; television networks like CNN, TNT and HBO; and such magazines as Sports Illustrated, Fortune and People.

By posting such content on its Internet service, AOL could attract subscribers. Of perhaps greater importance is Time Warner's cable-television empire, the second largest in the country behind that of AT&T Corp. Cable wires are able to carry Internet transmissions far faster than normal telephone lines, and AT&T has been avidly buying up cable systems to boost its Internet services. With the Time Warner cable systems, AOL would be able to counter AT&T's moves.

Time Warner would be able to put its film clips, songs, articles and other content before the eyes of a vast and rapidly growing online audience and take greater advantage of the boom in electronic commerce.

Broader reach

"AOL will be on every corner of the world where CNN has a presence; AOL brings to the table the savvy of the Net and the best reach," said Alexander C. Cheung, manager of the Bethesda-based Monument Internet Fund.

"I won't say it was a match made in heaven, but definitely one that will give both of them the necessary tools to get the corner office in the new economy," Cheung said.

In an early display of the proposed company's potential, AOL and Time Warner announced yesterday a passel of content-sharing and cross-promotion agreements. For example, AOL's MovieFone movie directory service will promote Time Warner films, while Time Warner will offer special magazine and cable subscription deals to AOL's users.

The stock purchase was unanimously approved by each company's board of directors, and must obtain the consent of federal regulators and local cable companies, as well as the shareholders of both corporations. The companies said they expect the transaction to close by the end of the year.

Strong-willed leaders

One major stockholder in Time Warner, CNN founder Ted Turner, agreed Sunday night to vote his 100 million shares -- 9 percent of Time Warner's outstanding stock -- in favor of the deal. Yesterday, Turner said of his vote, "I did it with as much or more enthusiasm as I did when I first made love some 42 years ago."

The free-spirited Turner, who would become vice chairman of AOL Time Warner, is part of a proposed management team thick with strong-willed leaders. In addition to Case, Levin and Turner, the company will have as a chief operating officer Bob Pittman, who brought MTV to national prominence in the 1980s.

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