America Online shares jumped as high as 85 in pre-open trading but fell back in late morning trading on the New York Stock Exchange as investors digested the terms of the deal, sinking to 72, down 7/8 of a point from Friday’s close. Time Warner stock surged as high as 98-1/4, but dropped back in tandem with AOL shares to trade at 88-1/2, up 23-3/4, also on the NYSE.
At a time when traditional media companies are struggling to reinvent their Internet strategies, the merger would give Time Warner — the leading provider of media content such as movies, music and magazines — a huge and powerful platform for reaching people online. AOL is the nation’s largest online company with some 20 million subscribers.
The deal also gives AOL a key tool for distributing its services: access to Time Warner’s large cable network system, the nation’s second largest after AT&T’s with 13 million cable subscribers.
“It makes a lot of sense,” said Tom Wolzien, a media analyst at Sanford C. Bernstein & Co. “AOL provides a huge platform for all of Time Warner’s content, and Time Warner’s cable systems provide a good network for AOL’s online services.”
Time Warner was created by the 1990 merger of Warner Communications Inc. and Time Inc. America Online was founded in 1985. The new media giant would have combined annual revenue of over $30 billion.
AOL shareholders will own 55 percent of the combined company, which will be called AOL Time Warner Inc. Time Warner shareholders will own the rest.
The deal is subject to certain conditions, including regulatory approvals and the approval of AOL and Time Warner shareholders. The companies said the merger was expected to be finalized by the end of the year. The Justice Department said today it was unclear whether it or the Federal Trade Commission will be asked to approve the proposed merger.