America Online Inc. and Time Warner Inc. today announced plans to merge in an all-stock deal the companies value at US$350 billion.
The new company, to be called AOL Time Warner Inc., will have combined revenues of over $30 billion, the companies said in a joint statement.
AOL Chairman and Chief Executive Officer (CEO) Steve Case will serve as chairman of the new company, and Time Warner Chairman and CEO Gerald Levin will be CEO of AOL Time Warner, the companies said.
"We're kicking off the new Internet century with a unique company," Case said on a conference call today.
The merger will give AOL, the world's largest online access company, a new broadband distribution platform for its services, as well as new subscribers through access to Time Warner's media outlets, the companies said. Time Warner's businesses include cable networks, publishing, music, film, cable and digital media. Some of its best-known properties are the publications Time, Sports Illustrated, Fortune Magazine, and People, as well as the cable television networks CNN, and HBO, the movie company Warner Brothers, and Warner Music.
The deal will also strengthen the companies' position internationally, which is especially important because last year, for the first time, the number of international Internet users outstripped the number of U.S. users, a trend which will certainly continue, AOL President and Chief Operating Officer Bob Pittman said on the call. International users are already important to the companies -- for example, Warner's music group earns nearly 50 percent of its revenues from outside of the U.S. -- and the importance of international users will continue to increase, Pittman said.
Under the terms of a definitive merger agreement already approved by both companies' boards of directors, Time Warner shareholders and AOL shareholders will be able to exchange their shares for stock in the new company. Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own, and America Online shareholders will receive one share of AOL Time Warner stock for each share of America Online stock they own, the companies said.
The merger still must get approval from both companies' shareholders as well as the appropriate regulatory approvals. The companies expect the deal to close by the end of the year. Ted Turner, vice chairman of Time Warner, has agreed to vote his 9 percent of Time Warner common stock in favor of the merger, the companies said. Turner was not present on the conference call. The merger will be accounted for as a purchase transaction and is expected to be accretive to America Online's cash earnings per share before the amortization of goodwill.
When the transaction is complete, America Online's shareholders will own approximately 55 percent and Time Warner's shareholders will own approximately 45 percent of AOL Time Warner.
Separately, the companies also announced a series of marketing, commerce, content and promotional agreements. They include giving AOL members access to Time Warner promotional music clips, and distributing broadband CNN content for AOL Plus, AOL's new offering for AOL customers that connect via broadband.
One analyst saw a number of advantages to the deal.
"This gives AOL access to a large range of content and Time Warner a channel for its content," said Stephen Adshead, a London-based analyst with the U.K. consulting company Datamonitor. "Another advantage for AOL is that it will gain access to Time Warner's cable network, and as we move into the broadband world that will become increasingly important."
An audio feed of the America Online/Time Warner press conference at 11 am EST today will be available to the media by calling +1 888-469-1386 (US) or +1-712-271-0747 (international) - Password: AOL. Webcasts of the press conference will be available at http://www.corp.aol.com/cgi/announce.html and http://www.timewarner.com AOL, in Dulles, Virginia, can be reached at +1-703-448-8700 or at http://www.aol.com.Time Warner can be reached in New York at +1-212-484-8000 http://www.timewarner.com.
(Douglas F. Gray, in London, contributed to this report.)