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To: Chuzzlewit who wrote (396)	1/10/2000 3:48:00 PM
From: Steve Robinett	Read Replies (1) \| Respond to of 419

Chuzz I just posted this on the AOL thread but it seems appropriate here, too, so I'll repeat it, though I doubt AOLers won't be happy with me for say it. Until today, AOL was in two business, "connectivity" (ISP) and "community" (portal). The connectivity business is growing between 35-50% but is a low margin business. (The last time I figured it out, it cost AOL about $17.50 of the $21.95 it got from subscribers to provide Internet service for a month.) The "community" business is a high-margin advertising and e-commerce business but accounts for only about 23% of AOL's revenues, though the vast majority of AOL's earnings growth. Now , AOL has gone into the content business, merging with Time Warner, a company with at 5-year sales growth rate (according to Yahoo) of 17.25% as compared to AOL's 110% five year growth rate. What this means, among other things, is that AOL's high growth rate advertising and e-commerce business will now have to tow two sluggish businesses (connectivity and content) not just one. This attempt at vertical integration, IMO, has reduced the future growth potential of the combined companies and their combined valuation. In this case, longer term, the sum of the parts is probably worth less than the whole. Best --Steve p.s. Short term, Wall Streeters are shorting AOL and buying TWX to arbitrage the valuation difference between the two issues. This will continue until the valuations relative to each other approximate the 1.5:1 merger.

To: Chuzzlewit who wrote (396)	1/12/2000 10:08:00 AM
From: Zoltan!	Respond to of 419

>>I find the acquisition totally consistent with the direction that we speculated the internet companies needed to take. If you recall, I pointed out that the real winners will be those companies that combine a fungible product with an efficient delivery system. I think that investors are beginnig to appreciate the potency of the combination, and that's why the "click and mortar" concept is beginning to gain currency. This combination is another example of that thinking. AOL will now control content and delivery and have broadband access through cable properties. I think the potential synergies in this combination are astounding. Now we are faced with the sticky question of valuation. Clearly, the Street likes the deal with Time Warner trading up around 50% and AOL up around 2%.<< Absolutely bizarre. Case is a carnival barker, always shifting attention so the rubes don't catch wise to his shell game. The AOL deal is just more razzle-dazzle from a company whose valuation reality was and is firmly rooted in ether. If there ever was a Y2K "Nifty-Fifty" stock, its name is AOL. From today's WSJ: ....Had AOL gone it alone, the investment world would have eventually woken up and AOL's stock would have taken a beating. And even if AOL's business model did miraculously hold up, AOL, along with most of the Internet stocks, is grossly overvalued anyway. AOL would have to grow its revenues at an average of close to 100% per year over the next five years in order to maintain its current market valuation. In other words, AOL would have to be generating more than $100 billion a year to sustain its market cap--a far cry from today's $5 billion annual revenues. Mr. Case's most significant stroke of genius will be that he bought Time Warner when AOL's market value was near its overhyped peak. Amazingly, even though Time Warner's annual revenues of $26.8 billion dwarf AOL's $4.8 billion, Mr. Case walked away with 55% of the combined corporate pie. Mr. Case, once again, is beating the odds, and this time he has made it to the top of the real media world just in time. - Anthony B. Perkins, editor in chief of Red Herring and co-author of "The Internet Bubble" (HarperBusiness, 1999). interactive.wsj.com Not for the long term. Not even close. btw, re: fungible, either you need a dictionary or you don't understand their stated reason for the deal.

To: Chuzzlewit who wrote (396)	2/27/2000 5:31:00 PM
From: kjhwang	Read Replies (1) \| Respond to of 419

If we examine the merged entity from a DCF valuation standpoint, isn't it true that the large LT debt load & Pfd. stock carried by TWX will HELP the valuation case of the merged entity using a WACC analysis? Case in point: AOL : Debt: 341 M Pfd. Stock: 0 Equity (MV)~ 134129 M WACC~19.18% Combined: Debt: 18153 M Pfd. Stock: 1 M Equity ~ 242153 WACC~ 17% To approximate the value of the combined, an approximation of the future cash flows are needed. My belief is that the current valuation of the combined is UNDERVALUED at current prices using a simple combination of the two financials & assuming a growth rate between 35% & 20% over 10 years. Reasons: 1. Decrease in WACC 2. Increase in FCF/share of combined entity. Am I missing something? tci