America Online, the world's largest Internet service provider, and US media and entertainment colossus Time Warner Monday announced a stock-for-stock merger.
The deal is to create a sprawling media empire with a combined market capitalisation of about $247bn (£153bn) and combined revenues of more than $30bn (£19bn), and extensive holdings in the on- and off-line worlds.
It would be the first merger of a traditional media giant and a hot new-media company. Lycos' planned merger with USA Networks would have been the first, but that deal was scrapped after Lycos' stock plummeted. Though AOL is far younger than Time Warner, which publishes the venerable Time Magazine among many others, AOL's market capitalisation is nearly twice that of Time Warner.
Time Warner holds an array of media, entertainment and news brands, as well as US cable-television networks and cable-based high-speed Internet delivery systems. America Online has the world's largest online audience; its flagship brand has more than 20 million subscribers, or four times the number of the next-largest ISP.
Under the terms of a definitive merger agreement approved by unanimous votes at meetings of each company's board of directors, Time Warner and America Online stock will be converted to AOL Time Warner stock at fixed exchange ratios, the companies said in a statement. The Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own. America Online shareholders will receive one share of AOL Time Warner stock for each share of America Online stock they own. The merger will be effected on a tax-free basis to shareholders. When complete, America Online's shareholders will own approximately 55 percent and Time Warner's shareholders will own approximately 45 percent of the new company. The stock will be traded under the symbol AOL on the New York Stock Exchange.
Steve Case, chairman and chief executive officer of America Online, will become chairman of the board of the new company. Gerald M. Levin, Time Warner's chairman and chief executive officer, will become AOL Time Warner's chief executive officer, the companies said.
"We're kicking off the new century with a unique new company that has unparalleled assets and the ability to have a profoundly positive impact on society," said AOL's Case in a statement. "By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained."
Time Warner's Levin said the move would speed his company's adaptation to the increasingly fast-paced, digital world of media in the 21st century. "The digital revolution has already begun to create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression. AOL Time Warner will lead this transformation, improving the lives of consumers worldwide," he stated.
The brands of the combined company 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
Along with the merger, the companies announced a series of cross-brand promotions, including broadcasting CNN news content via AOL's high-speed AOL Plus online service. Time-Warner's retail stores will also distribute AOL discs
The deal also resolves a long-running dispute between AOL and Time Warner's high-speed, or broadband, Internet access service. AOL has been pushing for the right to bundle its service with the cable-based broadband services of Time Warner and others. Excite@Home, a rival to Time Warner's broadband service, is still exclusive to AT&T. AT&T, however, plans to open up access.
AOL has a market capitalisation of about $163bn, while Time Warner is capitalised at about $83bn, based on closing stock prices Friday.
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