AOL-Time Warner Delay Won't Hurt 2001 Results, Investors Say
Dulles, Virginia, Nov. 16 (Bloomberg) -- A delay in the closing of America Online Inc.'s $128 billion purchase of Time Warner Inc. shouldn't keep the companies from meeting their financial projections next year, investors and analysts said.
The U.S. Federal Trade Commission last week delayed a vote on the purchase by as much as three weeks, raising the possibility that the transaction won't close by next month, which both companies have stated is their goal. America Online spokeswoman Kathy McKiernan and Time Warner spokesman Scott Miller said today that the acquisition is still on track to close in the fall season, which ends Dec. 20.
America Online and Time Warner executives have said the combined company will have more than $40 billion in sales in 2001 and about $11 billion in cash flow, or earnings before interest, taxes, depreciation and amortization. America Online and Time Warner expect to reach those goals in part by cross-selling each others' products, such as promoting Time magazine to America Online's more than 25 million subscribers.
``A delay of a month or so doesn't seem big enough to change the outlook for 2001,'' said Brian Grove, principal of Vaughan, Nelson, Scarborough & McCullough LP, which owns shares of both America Online and Time Warner. ``The companies right now, as much as they can, are operating as one unit, and I'm not sure there are any major missed opportunities that a delay of a month or two would cause.''
Dulles, Virginia-based America Online reported sales of $4.8 billion in its fiscal year ended June 30. Time Warner's 1999 revenue was $27.3 billion.
America Online's McKiernan declined to comment on whether the companies will reach an agreement with the FTC before the three- week delay expires. Time Warner's Miller also declined to comment.
New Concessions
The FTC delay came after the companies pledged to offer new concessions to preserve competition for Internet access, averting a likely FTC court challenge to their combination.
Many investors said a delay until at least early 2001 is likely.
``It certainly doesn't look like it will get done this year,'' said Howard Ward, manager of the $4.4 billion Gabelli Growth Fund, which owns Time Warner and America Online shares. ``There's just not a lot of time left. We just have to be patient and hope (the companies and regulators) can work something out.''
The five-member FTC wants assurances that America Online, the world's largest Internet service, would grant rival Internet service providers access to Time Warner's high-speed cable- television lines. The companies have said they're committed to a policy of ``open access,'' though the specific rules and fees to be charges for access haven't yet been decided.
`A Question of When'
The companies' concessions to gain FTC approval shouldn't hurt their business, analysts said.
``The deal (will) get done without material modification, so it's just a question of when,'' said CIBC Oppenheimer analyst John Corcoran, who has a ``strong buy'' rating on America Online. ``The types of conditions the FTC is discussing with America Online and Time Warner are in the range of what we expected.''
A six-month delay would bump up against a May 31 termination date. If the acquisition isn't completed by May 31, both Time Warner and America Online can walk away from the transaction without penalty, according the companies' government filings.
By that measure, ``there's not a huge pressure right now to get the deal done,'' said Tom Burnett, president of Merger Insight in New York.
America Online shares today fell 59 cents to 48.85 in New York Stock Exchange trading. Time Warner fell $1.51 to $72.99.
Stock Decline
The value of AOL's offer has fallen 30 percent since it was announced on Jan. 10. Since March, Internet stocks have tumbled on investor concerns about widening losses and slowing online advertising spending. That, combined with concerns that buying Time Warner will slow America Online's growth, contributed to a 33 percent drop in America Online's stock.
A delay in the deal's closing raises the chance that America Online's and Time Warner's shares could fall further on worries about a potential FTC veto, said analysts and investors.
``The longer the government is involved, the less fun it is,'' said Larry Haverty, a portfolio manager of State Street Research & Management, which owns Time Warner and America Online shares. The regulators ``are making these guys dance. The longer they dance, the more tired they get.''
Still, many investors and analysts said they believe it's unlikely the government will kill the acquisition. The ``spread,'' or the difference between the value of America Online's offer and Time Warner's stock price, is small, indicating that investors think the deal is likely to go through.
``This is all part of the negotiation,'' Burnett said. ``It makes the FTC look good. The spread is (about) 20 cents. The market is saying ho-hum.''
Nov/16/2000 16:46 ET
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