Stalking the Stock Price of AOL Time Warner

Newsweeklies lucked out with the AOL-Time Warner Inc. deal. Nearly two weeks after the union was announced, the debate du jour remains how much this sucker's stock is worth. And with that unanswerable question bound to linger for months and years, the weeklies chimed in with their two cents' worth.

U.S. News & World Report homed in on the fat 71 percent premium that Time Warner demanded from AOL, and wondered if it didn't hear the first few hisses of air leaking from inflated Netco valuations. A premium of 30 percent would have been more typical, writer James Pethokoukis pointed out. "This deal suggests that when you get into the traditional world, Time Warner was not willing to give AOL dollar-for-dollar credit for its market value," Schroder & Co. analyst Arthur Newman told Pethokoukis. Steve Case's acceptance of the deal might signal an admission that AOL is worth $50 rather than $70-plus, or just that he was willing to do what needed to be done to buy an extremely valuable media conglomerate. "The bad news here for investors is that shrewd businessmen seem to take a more skeptical view of Internet stock prices than the amateurs who inhabit online chat rooms," Pethokoukis wrote.

BusinessWeek was all about Big Concepts. It packaged AOL's Bob Pittman and Steve Case on the cover and lauded them as Men of the Century. Not content with that proclamation, the mag referred to the deal as the Merger of the Millennium. But when it came to how much the thing was worth, BW gave the nod to guesstimates by ubiquitous Net stock analyst Henry Blodget of Merrill Lynch.

Blodget gave himself a wide berth. The numbers man sliced and diced the financials of AOL and Time Warner and then issued his projection on the stock's worth once the two companies have merged into one happy family: $55 a share.

Then again, it might be $90, too, Blodget offered in his wide-as-a-barn-door forecast.

Newsweek's Allan Sloan angled in on stock price as the very essence of AOL.

"Why does AOL care so much about its stock price? Because its big shots are optioned to the eyeballs, stock options drive the AOL culture and AOL uses its shares to make acquisitions," Sloan wrote. As for the execs' options, Sloan tallied up the hauls: $365 million for Time Warner's Gerry Levin, and for AOL's Steve Case, $600-plus million in unvested options and another $775 million in vested options. Those Brink's-truck totals pointed to another possible motivation for the merger. "I'm not saying this is why Levin and Case are doing the deal," Sloan wrote, "but it sure doesn't hurt any."

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