Jan. 10, 2000 -- You've got mail. And movies. And music. And magazines.
In the most dramatic instance yet of new media supplanting old media, America Online is buying Time Warner, the largest media and entertainment conglomerate in the world, for $162 billion.
The deal would be the biggest corporate merger of all time as well as an aggressive bet that online delivery of media is the wave of the future.
"This merger will launch the next Internet revolution," said Steve Case, America Online's chairman and chief executive, told a news conference Monday. "We're still just scratching the surface."
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Case will be chairman of the new company, which will be called AOL Time Warner Inc. and headquartered in New York. Time Warner chairman Gerald Levin will be its chief executive. Ted Turner, who owns 9 percent of Time Warner, will retain his title of vice chairman.
America Online shareholders will own 55 percent of the company, and Time Warner shareholders the rest. AOL Time Warner's brands would include AOL, CompuServe, CNN, Time, Netscape, TBS, TNT, Cartoon Network, HBO, Warner Music Group, Fortune, Sports Illustrated, Entertainment Weekly and Looney Tunes.
The deal values Time Warner at about $108 a share, a rich premium over its price of $64.75 a share before Monday. Time Warner shares soared 39 percent on news of the deal, climbing $25.31 1/4 to $90.06 1/4 a share on the New York Stock Exchange. AOL shares fell $1.75 to $72.
Analysts expect competing Internet and entertainment companies to seek similar deals in hopes of keeping pace with AOL and Time Warner, and some of those stocks also got a lift Monday. Disney jumped $4.81 1/4 to $35.93 3/4 and News Corp. rose $7.31 1/4 to 45.06 1/4 on the NYSE. Lycos leaped $9 to $79.75 and Yahoo! climbed $28.81 1/4 to $436.06 1/4 on the Nasdaq Stock Market.
The deal marks a major turning point in the media industry, highlighting the massive power and value that Internet companies like AOL have built up in a relatively short time.
America Online, based in Dulles, Va., has more than four times the net profit of Time Warner, earning $762 million in the fiscal year that ended June 30, even though Time Warner's revenues of $26.8 billion dwarf AOL's $4.8 billion.
In combining the leading Internet company with the leading traditional media company, the deal also shows that new media and old media need each other more than ever before.
AOL needed access not only to Time Warner's media content machine _ which produces films, music, TV shows and magazines _ but also to Time Warner's large network of cable TV lines, which is second only to AT&T's and reaches 20 percent of U.S. households.
Time Warner, like other major media companies, has been in the middle of a major effort to reinvent its own Internet strategy. Last year it set aside $500 million to invest in Internet opportunities.
With the AOL deal, Time Warner acquired an online platform of 22 million subscribers _ including CompuServe customers _ for delivering its content to computer users, a goal it has had for some time. "This really completes the digital transformation of Time Warner," Levin said. "These two companies are a natural fit."
At a news conference announcing the deal, Levin deliberately blurred the lines on the question of which company was the "old media" and which was the "new" one. Dressed in khaki pants, an open-collar shirt and sports coat while all the AOL executives wore suits, Levin opened his remarks by saying: "It's a great pleasure to welcome the suits from Virginia to New York."
Levin stressed the point that Time Warner itself was the product of a series of large mergers, and Case said the experience in integrating disparate companies was a major factor that drew him to the Time Warner management team.
New York-based Time Warner was formed 10 years ago, combining the entertainment company that grew out of Warner Bros. movie studio with Time Inc., whose flagship magazine Time was founded in 1923 by Henry Luce. Time Warner bought Turner's cable company TBS in 1996, which added the all-news channel CNN to Time Warner's cable lineup of HBO and Cinemax.
AOL has been no stranger to deals since being formed in 1985. Last year it acquired Netscape Communications and MovieFone, and it also bought online competitor CompuServe the year before that.
Painfully aware that telephone dialup connections are far too slow to provide the kind of online services like TV, movies and music that people want, AOL has been on a campaign to force cable providers to open up access to their lines, which can provide much faster access than phone lines. Consumer groups now fear that with AOL set to own a major cable provider, it may ease up on its efforts to ensure "open access."
The transaction would surpass the biggest proposed takeover before Monday, the $129 billion hostile bid for German telecommunications company Mannesmann by Britain's Vodafone, the world's largest mobile phone company.
Coming just four months after the latest blockbuster media merger, the proposed combination of CBS Corp. and Viacom Inc., the AOL-Time Warner deal also raised concerns from consumer groups and lawmakers about the increasing consolidation of ownership among major media companies.
Sen. Mike DeWine, chairman of the antitrust subcommittee, said the deal "raises a whole host of competition and public policy issues."
"Is this merger the effective beginning of the end of the Internet as an effective counterweight to traditional media outlets, or is this just another step on the road to making the Internet a more useful and viable source of information?" said DeWine, a Republican from Ohio.
Several consumer advocacy groups, including the Consumers Union and the Center for Media Education, released a joint statement saying, "Consumers do not want to be beholden to a giant media-Internet dictatorship, even if it promises to be a benevolent one."
Case said the company remains committed to providing consumers with as many choices as possible, and predicted that the deal would lead several new companies to offer Internet access.
Case said he first approached Levin about a possible combination in October. The fact that no advance word leaked out about the discussions, he said, was a sign that the new executive team likes and trusts each other.