AOL to acquire Time Warner

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America Online, Dulles, Va., will acquire Time Warner, New York, in a deal valued at $184 billion--the largest corporate merger to date and the first time an Internet company has acquired a blue-chip "old media" company with properties in publishing, cable, movies and music. In the deal announced today, AOL shareholders will own 55% of AOL Time Warner Inc. even though AOL accounts for only 20% of the new entity's revenue. The agreement, expected to close by the end of the year, gives AOL a wealth of content to distribute across its network, while it opens up new territory for Time Warner to make that content (CNN, Sports Illustrated and Warner Bros. films, to name a few) available. For both, it stands to spur new cross-marketing opportunities and growth in e-commerce and ad revenues.

It "will drive the growth of advertising across all of our core brands," said AOL Chairman-CEO Steve Case, who will become chairman of the merged company. Time Warner President Richard Parsons, who will become a co-chief operating officer of AOL Time Warner, said the deal "should enhance the revenue growth of advertising for both companies," giving advertisers a "one-stop shop" to reach consumers broadly and via targeting. Time Warner Chairman Gerald M. Levin will become the new company's chief executive, while Time Warner Vice Chairman Ted Turner will be its vice chairman. AOL President-Chief Operating Officer Pittman will be a co-chief operating officer with Mr. Parsons. The 82,000-employee new company will have combined revenue of $40 billion. It will own cable systems reaching more than 20% of U.S. households, making it the second-largest cable carrier, while its Web brands reach some 80% of Internet users. But Mr. Case said the company wouldn't use its size in "any exclusionary way" to squeeze out other content providers.

AOL, founded in 1985, has a market value of about $164 billion, and has 20 million subscribers. Time Warner, valued at $97 billion, owns CNN, TBS, HBO, Warner Bros. movies, TV and music studios, and under Time Inc., well-known magazines such as Time, People and Fortune. The deal is expected to go a long way toward correcting what has been perceived as a major failure on Time Warner's part to establish a viable new-media business. Last year, Chief Financial Officer Richard Bressler was named to a new post to develop Time Warner's new-media businesses.

To highlight some of the cross-marketing opportunities the deal opens up, the two companies made several additional announcements today. Those include offering Time Warner's In Style magazine on AOL's service, featuring CNN.com programming on AOL, giving AOL subscribers access to recordings made by Warner Music artists, and offering AOL members discounts on Time Warner magazine subscriptions and cable services.

Copyright January 2000, Crain Communications Inc.

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