AOL to merge with Time Warner...

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From: Adam Rifkin -4K (
Date: Mon Jan 10 2000 - 03:08:22 PST

Everyone thought AOL's stock was in a bubble, right? Well, talk about a
creative way to "grow" into one's market cap: buy another major media
company. I gotta admit, I didn't see this one coming...

A deal of this kind very much ratifies the value of Internet paper in
the world beyond virtual business, indeed.

> Time Warner, AOL seen in merger
> Shares surge in European trade
> By Suzanne Miller, CBS MarketWatch
> Last Update: 5:47 AM ET Jan 10, 2000 NewsWatch
> LONDON (CBS.MW) -- Time Warner Inc., the world's biggest media company
> and Internet giant America Online Inc. have reportedly agreed to merge
> in a blockbuster deal, said CNBC, citing a story from the Dow Jones News
> Wire. CNBC said a deal could be announced as soon as Monday.
> Spokesmen for both companies in Europe were not immediately available
> for comment. CNBC said Time Warner's chairman and chief executive Gerald
> Levin will be the chief executive while Steve Case, AOL's chairman, will
> be chairman of the merged group.
> The deal would create a company with a combined market cap of $247
> billion, with AOL's value of $164 billion towering over the seasoned
> blue chip Time Warner's value of $83 billion.
> The news set the shares of both companies on fire in Europe, with AOL
> (AOL: news, msgs) surging 15.8 euros, or 22.5 percent, 86 euros. Time
> Warner's (TWX: news, msgs) German-traded shares were up 5.5 euros, or
> 8.9 percent, at 67.
> Analysts say that together, the two would make a formidable force not
> only in their home U.S. market, but also in Europe where they have a big
> presence too. The deal will certainly give AOL's arm, AOL Europe, a big
> boost against incumbent rivals such as Freeserve PLC (FREE: news, msgs),
> Britain's biggest free Internet service provider.
> "Wake-up call"
> Miles Saltiel, analyst with WestLBPanmure said "a deal of this kind very
> much ratifies the value of Internet paper in the world beyond virtual
> business."
> He called the prospective pact "a wake-up call for Internet access
> providers all over the world, with alliances between content and access
> likely to be the theme of the next couple of months."
> Media shares in London surged on the news, with traders clearly sharing
> the view that more media-Internet hook-ups are in the air. Pearson PLC
> (PRNSY: news, msgs) was up 8.2 percent at 139 pence; United News & Media
> PLC (UNEWY: news, msgs) was up 2.5 percent; and Reuters Group PLC
> (RTRSY: news, msgs) was up 35 pence, or 4.6 percent, at 793.50; and
> Granada was up 65.5 pence, or 11.2 percent, at 651 pence.


To add to the maelstrom, Friday morning saw Lehman Brothers analyst Steven Levy issue a stern about-face on Lucent stock less than 24 hours after he raised his price target. Of course, his call Thursday hit the market just two hours ahead of the widely chronicled preannouncement, leaving no small amount of egg on his face. To quote the analyst's turnabout-is-fair-play remarks of Friday: "Investors would be better off watching the company regain its footing from the sidelines." (Or, at the very least, they might benefit by not issuing reports just before preannouncements.)


Despite all that, Lehman Brothers analyst Levy got a small measure of revenge Friday, downgrading the stock to neutral and unveiling a new, trimmer price target.

His report, "Lucent: A Funny Thing Happened on the Way to the Networking R/EvoLUtion," had Levy knocking down his rating for the stock just two months after he had upgraded it. With an astute grasp of the obvious, the report notes of Levy's new 12-month price target of 57: "This is significantly lower than the $95 level we set just yesterday."


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