AOL-Time Warner Deal Won't Affect Consumers Soon

Consumers will not see much immediate change resulting from America Online Inc.'s merger with Time Warner Inc., analysts said today.

AOL users will gain access to Time Warner's smorgasbord of content, ranging from music to film to magazines, though that could have been achieved by a contract between AOL and Time Warner, said Robert Rosenberg, president of Insight Research Corp. in Parsippany, New Jersey. Still, the merger will "enable a lot more material to be packaged under one umbrella," Rosenberg said.

While AOL users can eventually expect faster Internet connection times through broadband pipes, which Time Warner can deliver via its existing RoadRunner service or its cable business unit, in the short term there will be few effects on consumers, according to Anya Sacharow, an analyst with Jupiter Communications in New York.

AOL and Time Warner announced plans earlier today 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. 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, 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.

Although analysts predicted the status quo for consumers, they wondered whether the deal might yet spawn more executive changes. AOL Time Warner, the new company, will bulge with decisive men accustomed to solo power, and analysts speculated that there may be some friction and fallout.

"You wonder who's going to be left standing," said Gary Arlen, president of Arlen Communications Inc., a research firm in Bethesda, Maryland.

But the men -- including Case, Levin and Ted Turner, the vice chairman of Time Warner whose own Turner Broadcasting Systems was absorbed by Time Warner -- said that their strong personalities would not result in friction.

"I don't think that's going to happen," Turner said on a conference call today.

Analysts also worried about the slippery but real problem of corporate culture.

It was weird enough when Time, of New York, merged with Hollywood's Warner, said Arlen of Arlen Communications.

"Sixth Avenue with Dulles, Virginia [AOL's headquarters] is a real mindblower," Arlen said.

In the international arena, the deal will soundly strengthen the companies' position, analysts said. Gaining international muscle is especially important given Internet trends, according to AOL President and Chief Operating Officer Bob Pittman on the call today. 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.

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.

In terms of the competitive landscape, AOL will continue to be open to other companies' content, Case said on the conference call.

"The bias should always be to partnerships," Case said. "No single company, even Time Warner, can go it alone."

That may be welcome news to Microsoft Corp. and AT&T Corp., the two companies most mentioned by analysts as affected by the birth of AOL Time Warner. AT&T is clearly interested in the cable industry, and Microsoft is morphing beyond software into content and services with MSNBC and many other relationships, analysts said. Case singled out Microsoft as AOL's "largest competitor" but noted that the companies have many areas of cooperation too, which will continue.

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. Analysts did not anticipate any major regulatory hurdles.

Ted Turner has agreed to vote his 9 percent of Time Warner common stock in favor of the merger, and the companies expect the deal to close by the end of the year. 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 announce 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.

AOL, in Dulles, Virginia, can be reached at +1-703-448-8700 or at Warner can be reached in New York at +1-212-484-8000

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