AOL, Time Warner Merge, Create $350 Billion Media Giant
The merger is the biggest endorsement yet for the idea of using the Internet to distribute media content, and also buys AOL's entry into broadband delivery of its services—the company has been fighting for such access, even going to court to force AT&T, the US's largest cable operator, to provide access over its cable pipes. AOL Time Warner will provide an important new broadband distribution platform for AOL's interactive services—including AOLTV, which will be launched later this year—and drive subscriber growth through cross-marketing with Time Warner's brands. AOL Time Warner's brands will 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.
Steve Case, chairman and CEO of AOL, will become chairman of the board of the new company. As chairman, he will focus particularly on the technological developments and policy initiatives driving the global expansion of the interactive medium. Gerald M. Levin, Time Warner's chairman and CEO, will become AOL Time Warner's CEO. Ted Turner will become vice chairman of AOL Time Warner. Time Warner president Richard Parsons and AOL president and COO Bob Pittman will be co-chief operating officers of AOL Time Warner. J. Michael Kelly, senior VP and CFO of AOL, will become the new company's CFO and executive VP.
Under the terms of the agreement, Time Warner and AOL stock will be converted to AOL Time Warner stock at fixed exchange ratios. The Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own. AOL shareholders will receive one share of AOL Time Warner stock for each share of AOL stock they own. The merger will be effected on a tax-free basis to shareholders. When complete, AOL shareholders will own approximately 55% and Time Warner's shareholders will own approximately 45% of the new company.
The merger will have a profound effect on all media, especially the cable industry, which reacted positively.
"[The] announcement by AOL and Time Warner affirms again that broadband cable is the premier platform to deliver information and entertainment," says Robert Sachs, president and CEO of the National Cable Television Association (NCTA). "In the first days of this Internet century, cable systems and programming networks are being validated as key to any long-term business strategy for the Web. It also removes any question that market transactions are far preferable to government regulation in sorting out the complex and promising destiny of the new digital economy."