In an audacious deal bringing together traditional entertainment and the new world of the Internet, America Online and Time Warner Inc. on Monday announced they will merge in the largest business transaction in history.
The $163.4-billion merger would combine the most successful brand name on the Internet with the world's largest entertainment company, whose brand names include the Warner Bros. studio, the WB television network, HBO, CNN, and Time Magazine. Time Warner is also the nation's second-largest cable systems operator, providing AOL with sought-after access to the vaunted high-speed pipeline into American homes.
It is the first purchase of a major media company by an Internet company. Such a transaction has long been anticipated but was hampered because of uncertainties about the real values underlying the often euphoric trading of Internet stocks.
Many in the investment community believe the AOL-Time Warner deal could presage a torrent of similar transactions, with such well-known names as the Walt Disney Co., Yahoo, and Viacom and CBS (which are themselves in the process of merging) prompted to seek complementary partners.
On its own terms, the proposed deal creates a critical mass of about 100 million customers, including AOL's more than 20 million Internet subscribers, Time Warner's 12 million cable customers, and the Time publications' 28 million subscribers--whose attention spans could be sold en masse to advertisers around the globe.
"This is a perfect fit as a unified entity," AOL Chairman and Chief Executive Steve Case told an audience of Wall Street analysts shortly after the deal was announced Monday morning. "No company will be better equipped to capitalize on the convergence of media, entertainment and communications."
AOL and Time Warner executives said the deal could take nearly a year to complete. That could add some risk to the merger, given the volatile price swings of AOL and other Internet companies' high-flying stocks. Some analysts question whether the active traders who are AOL's shareholders will bail out if the stock declines or begins trading more like a traditional media company.
Moreover, questions about how the cultures of the two companies will mesh are inevitable. At a news conference Monday launching the merger, Time Warner Chairman and Chief Executive Gerald Levin appeared ostentatiously tieless, as though to signal his solidarity with what he called the "hip and socially minded" culture of AOL.
