Any merger raises questions--but the biggest merger of all time raises huge ones. Here are answers to basic questions about the proposed marriage between America Online and Time Warner.
Q: What is AOL?
A: America Online is the biggest Internet service, with 22 million subscribers. If the $183 billion deal goes through, the Dulles-based company's slogan, "AOL Everywhere," will be more meaningful. The company already owns Netscape Communications and offers access to the Internet in 15 countries.
What is Time Warner?
Time Warner is one of the world's biggest media companies, with newsweekly Time and a stable of other magazines, CNN, HBO, Warner Brothers movies and television, and more under its broad corporate umbrella. The New York-based giant was created in 1990, in a merger of Time Inc. and Warner Communications Inc. valued at $15 billion, which at the time was considered an awful lot of money. The company then bought Turner Broadcasting in 1996.
Why are they proposing a merger?
Big media companies have been scrambling lately to get bigger--only four months ago, for example, CBS and Viacom announced that they would merge. Time Warner and AOL would be the first mega-merger of an Internet "new media" giant with old media--publishing, movies and television. Each company sees the other providing a crucial element that it lacks--especially now that high-speed Internet connections, which can carry full-motion video and audio, not just text, are becoming more widely available. AOL gets one of the richest streams of content in the business. Time Warner gets a new chance to offer its wares online. "This is the first mega-Webcaster of the future," says Scott Cleland, analyst with Legg Mason Precursor Group.
What would the new combined company look like?
One word: big. Its market value will be $350 billion. Steve Case, the chief executive of AOL, would become chairman of the merged company. Gerald Levin, head of Time Warner, would become AOL Time Warner's chief executive. The company's headquarters will be in New York, home of Time Warner. But on Wall Street, its stock symbol will be the red-hot "AOL."
What will stockholders get?
Time Warner shareholders will get 1.5 shares of AOL Time Warner for each of their shares, valued at about $110.60 at Friday's closing price of AOL; America Online shareholders will receive one share of the new company. Shareholders in today's America Online will own about 55 percent of the new AOL.
Are federal regulators likely to allow such a huge deal to go through?
The sheer size of the deal is not necessarily an impediment, but the merger will be subjected to regulatory scrutiny, with the biggest sticking point being the implications for cable television and high-speed Internet access. Time Warner owns Roadrunner, which provides Internet access over cable lines; Roadrunner is partly owned by AT&T. AOL has been among the most vocal of the companies calling for federal regulators to open access to AT&T's high-speed cable lines so that consumers can choose to have AOL or some other firm as their Internet service provider.
What does this mean for consumers?
More and more of the media that consumers get--whether online, on screen or at the newsstand--will come from one source. That doesn't necessarily affect prices or availability of products, but the trend toward consolidation raises questions about the number of independent voices in the media.
Will I be getting even more of those AOL disks in the mail?
Absolutely. Each company sees the other as a way to push its wares, and Time Warner has more entry points into America's homes than just about anyone. Expect to see a tremendous amount of cross-promotion.