1 1/2 shares to 1 according to this news story
biz.yahoo.com
Under a fixed exchange ratio, Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own while AOL shareholders will receive one share of AOL Time Warner stock for each share of AOL they own.
AOL shareholders will hold 55 percent of the merged company, while Time Warner shareholders will hold 45 percent.
VALUING THE COMPANY ON PAST, PRESENT OR FUTURE?
Terms of the deal took into account the fact that AOL's market capitalization ahead of the announcement was twice the size of Time Warner's. That was weighted against the reality that Time Warner's strong cash flow is roughly four times larger than that of America Online.
``Time Warner provides AOL with an important missing link,' Bear Stearns analyst Scott Ehrens said in a research note. He argued that the importance of the deal was how it provided AOL with access to Time Warner's high-speed cable television network, which reaches 20 percent of U.S. cable TV subscribers.
The stock had been hurt in recent months by concerns that AOL would be shut out of the emerging market for high-speed Internet services.
The merger will be accounted for as a purchase transaction and is expected to be add to America Online's cash earnings per share before the amortization of goodwill.
Lehman accounting expert Robert Willens estimated the deal would generate a staggering $158 billion in goodwill write-offs. Amortized over a 20-year period, that would dilute earnings per share by $2 a year, wiping out AOL Time Warner's expected profits for years to come, he said.
Securities analysts had forecast AOL would only generate 32 cents per share during its fiscal year ending June 2000, according to First Call/Thomson Financial, which tracks broker estimates. Separately, Time Warner was expected to produce earnings per share of 61 cents during calendar year 2000.
But Wall Street appeared to brush off that concern, focusing instead on the deal's cash-generating power, the common barometer used to measure the performance of debt-laden media companies.
UBS Warburg analyst Mike Wallace cautioned that AOL investors may have second thoughts about the deal as they mull Time Warner's slower growth rate -- an issue that cast a cloud over previous marriages between traditional and new media.
The merger with America Online comes exactly 10 years to the day after Time Inc. merged with Warner Brothers in deal that created the world's largest media conglomerate.
The latest transaction, which is subject to certain closing conditions, including regulatory approvals and approval by America Online and Time Warner shareholders, is expected to close by the end of 2000.
The deal was only a few hours old when a phony press release began making the rounds on the Internet that jokingly referred to the combined company as eLeviathan.
Antitrust experts said America Online Inc.'s proposed purchase of Time Warner appears likely to clear antitrust agencies, but consumer groups said they opposed the merger because it would reduce AOL's political drive to force open cable networks to alternative programming from other networks.
Tom Pilla, a spokesman for AOL rival Microsoft, said the massive deal was the latest demonstration of how vital the Internet economy remains: ``The merger today is further evidence of just how competitive and dynamic this industry truly is.' |
