From: Adam Rifkin -4K (adam@XeNT.ics.uci.edu)
Date: Mon Jan 10 2000 - 05:29:48 PST
More things I didn't realize until now:
1. Steve Case will be the Chairman of the combined company;
Gerald Levin would be CEO. They've been in talks since November.
Steve Case made the first call. Gosh, Case is only 41, so he
could be Chairman of this combined company for quite a long time.
2. AOL contributes 66% to the market cap, but only gets 55% of
the combined company. As a result, AOL is up only 12 bucks in
premarket but Time Warner is up 50. So Time is rising to meet
AOL's offer. It will be interesting to see what multiple the
market rewards this new company with. (What is the combined
growth rate of this company? Combined revenues this year will
top $40 billion.)
3. Levin said flat-out that he believes the Internut stock
valuations are real. Heck, he was willing to trade his company
for Internut stock after all. AOL, of course, gets tremendous
assets out of this deal: everything from Bugs Bunny, movie
studios, and lots of syndicatable content, to cable broadband
Internet access through Roadrunner.
4. The combined company is worth $250 billion out of the gate,
making it the fourth-most valuable company in the country
behind Microsoft, General Electric, and Cisco. It makes the
race to the first trillion dollar market cap really interesting.
MSFT needs less than a double, GE needs a little more than a double,
CSCO needs a triple, and AOL needs a quadruple.
5. Geez, these AOL numbers are frightening...
> At September 30 AOL reported worldwide total subscribers of 18.7
> million for AOL and 2.2 million CompuServe Classic and CompuServe 2000
> members.
>
> Also, AOL had as of September 30 about 45 million net registered users
> of ICQ, about 70 million AOL Instant Messenger/buddy list users, and
> 20 million of Netscape Netcenter users.
Can this be right? 115 million people have registered for ICQ and/or
AIM? [Then again, I'm about 12 of those people, so I wonder how many
unique users they have.]
Here, I'll cut-and-paste Harmon's take plus some more perspective from
damnblue on TMF's boards:
http://boards.fool.com/Message.asp?id=1080158006777006
> Here is Steve Harmon's take on AOL/TWX proposed merger:
>
> NetStock! By Steve Harmon
> chairman & CEO
> e-harmon.com, Inc.
> Internet Investment Provider
> ______________________
> 2000.01.10:
>
> AOL-Time Warner Merger? Value For AOL Shareholders?
> ______________________
>
> (note: in lieu of Monday's emailbag this late-breaking analysis.
> Emailbag will be published tomorrow).
>
> A rumored merger between AOL and Time Warner may be announced Monday
> January 10, according to Dow Jones newswires.
>
> Terms unclear but we understand a 50-50 pro forma ownership for both
> AOL and TWX shareholders, despite AOL's $164.9 billion market cap vs.
> Time Warner's $83.3 billion market cap as of last Friday.
>
> Our analysis indicates that even if the 50-50 split of the newco is
> proposed that it may make sense on a fundamental valuation level: Time
> Warner may be undervalued vs. AOL's high-growth multiple. See our
> table here:
>
> ___________________
> AOL Time Warner
> ___________________
> (in bil. $) (in bil. $)
> Market cap $ 164.90 $ 83.30
>
> Latest quarter
> Revenue $ 1.47 $ 6.72
> Cash flow
> (EBITDA) $ 0.39 $ 1.93
> Net income $ 0.18 $ 0.36
>
> Annualized
> Revenue $ 5.87 $ 26.89
> Cash flow
> (EBITDA) $ 1.54 $ 7.71
> Net income $ 0.74 $ 1.44
>
> Valuation ratios
> Market cap/revenue 28 3
> Market cap/cash flow 107 11
> Market cap/income 224 58
>
> ) e-harmon.com, Inc.
> ___________________
>
>
> Said another way Time Warner's cable, film and music properties are
> the lifeblood of a long-range value proposition for consumers
> globally. AOL's long-range value proposition has over the past 6 years
> been more about service and less about technology.
>
> Does a merger make sense? The two are actually networks of content,
> communications and commerce. So yes.
>
> If the merger happens we think it solves AOL's broadband strategy,
> solves Time Warner's top slot problem (AOL's Steve Case may reportedly
> be named chairman of the merged company), and most important, brings
> together a unified continuum of media for consumers.
>
> Media is a continuum, the forms merely take different paths and
> shapes. The only real question for AOL shareholders especially is:
>
> Is 50% ownership of the new company a great offer since AOL market cap
> is more than twice TWX now?
>
> 1) it shows to me Time Warner's assets may be vastly undervalued at
> current levels (film, cable, broadcasting, publishing)
>
> 2) AOL does own the largest installed base of media consumers in the
> world, however.
>
> A combined market cap of the two based on January 7 close is $248
> billion. AOL comprised 66% of that total. The market obviously values
> AOL much higher due to its dominance in a fast-growing industry, the
> Internet.
>
> At September 30 AOL reported worldwide total subscribers of 18.7
> million for AOL and 2.2 million CompuServe Classic and CompuServe 2000
> members.
>
> Also, AOL had as of September 30 about 45 million net registered users
> of ICQ, about 70 million AOL Instant Messenger/buddy list users, and
> 20 million of Netscape Netcenter users.
>
> Time Warner's best property is probably CNN and its cable and Web
> outlets. WB Network does have some broadcast reach and HBO is a
> household brand in cable programming.
>
> While Time Warner may be undervalued on Wall Street I don't believe
> that means AOL shareholders should close the gap, however.
>
> To me this reach and market leadership ought to command a greater
> percentage of the pro forma company if a merger does happen. Perhaps
> not 66-34 but 55-45 or 60-40 in AOL's favor.
>
> Either way -- 50/50 or whatever split -- the new entity (if a merge
> happens) ought to command a premium as a complete media solution. It
> may also trigger or hasten Yahoo, Excite@Home and Lycos into merging
> with old-fangled media concerns.
>
> Old media assets may have found a catalyst for value long after they
> missed the Internet wave. That's because it's more about the service
> than technology, and media being a always on flow experience on TV
> box, PC box, phone, handheld, cell. Stay tuned or modemed.
---- Adam@4K-Associates.comIt's not going to stop till you wise up. -- Aimee Man, from track 8 of the Magnolia motion picture soundtrack
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