February 25, 2000
Blodget Talks, AOL Time Warner Chalks Up Some Points
Merrill Lynch (MER)
Yahoo (YHOO)
Boston University
Blodget Talks, AOL Time Warner Chalks Up Some Points
(February 25, 2000)
On Wednesday, Merrill Lynch (MER) 's king-bee Net analyst Henry Blodget gave his blessing to the AOL-Time Warner union in a positive report on the new company. Time Warner's stock price flew up 10 percent to $81.50, AOL's up 15 percent to $58.31.
Did AOL Time Warner send Blodget roses? It should have. Aside from the stock ride, Blodget's report gave AOL-TW some much-needed buzz. As for the media, it got a news hook on which to peg more coverage. Pre-Blodget, the six-week stock sag had left some in the press questioning whether the deal was really such a momentous occasion after all.
Analysts had tripped over themselves predicting that AOL Time Warner would trigger a slew of copycat deals. But Upside shrugs off the domino effect in its March issue. So does Yahoo (YHOO) COO Jeff Mallett, who sniffed to the monthly magazine's Loren Fox that "[c]ontrolling access and packaging content is more of a cable model than a Net model." Mallett, of course, has an ax to grind. Like any single person at a wedding, Yahoo had been asked incessantly, "When are we going to see you do this?"
AOL undoubtedly was eyeballing profits, not Net protocol, when it made the buy. But Fox tended to agree with Mallett. Why buy companies when you can ink a partnership deal instead? Alliances let their partners rub elbows without taking on each other's baggage, Boston University finance prof Allen Michel told Upside.
Even before Wednesday's "Blodget bump," as Bloomberg news service dubbed it, CNBC.com had pegged the deal as a go, if a wobbly one. For one thing, the deal has no "collar," or worst-case share price that would cancel it. CNBC.com pointed out that investors, however, are antsier than AOL and Time Warner. "If the merger premium continues to erode, Time Warner shareholders could start to question the merits of the deal," News.com reporters Dawn Kawamoto, Scott Ard and Sam Ames wrote for CNBC.com.
But hasn't the market already spoken? As the trio pointed out, the combined AOL ? Time Warner market cap, once worth a filthy-rich $350 billion, now hovers at a more modest $220 billion. The chief culprit is AOL's stock price, which has parachuted down 28 percent since the deal was announced. Scott Schoelzel, portfolio manager of the Janus Twenty Fund, a 1.52-percent stakeholder in Time Warner, guessed that AOL investors figure why pay pure-play prices for a company that's a muddy mix of Net and traditional media assets? Besides, as Upside pointed out, given the Net's rate of speed, there's no telling how lasting AOL Time Warner's advantages will be anyway.
thestandard.com
I didn't see a price target, but Blogdet picked YHOO last to double and it did.
Jack |
