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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: ANANT who wrote (40408)	11/29/2000 7:42:02 PM
From: ANANT	Read Replies (2) \| Respond to of 41369

How to value the new AOL November 29, 2000 12:00 AM PT by Stefani Lako Baldwin NEW YORK -- The proposed merger of America Online (AOL) and Time Warner (TWX) has had as many ups and downs this fall as the market itself. The megamerger of the Internet and media giants took another turn this week when the Federal Trade Commission shelved plans, at least for now, to block the merger by suing AOL. This was the second time the antitrust watchdog agency postponed a major decision on the deal that many expected to be completed by now. In the meantime, as access issues are hammered out between the feds and AOL-Time Warner, shareholders of both companies have seen the deal's value drop from $165 billion last January to less than $100 billion. If completed, Time Warner shareholders will receive 1.5 shares of the combined entity for every one share of Time Warner stock they hold. Thanks to the downward spiral of the tech sector, AOL's stock is now trading in the $40 range while Time Warner's is at $63. When the merger was announced on Jan. 10, AOL's stock was trading at $71.88 and Time Warner's share price shot up 39 percent, to $90.06. Still a good merger Yet even as AOL and Time Warner's fortunes swing back and forth, analysts remain optimistic that the merger will be approved and that the combined company's stock will flourish. To come up with these projections, Wall Street firms have had to think hard about how to appraise such a mixed entity, a company that combines both the old and the new economies. How do analysts evaluate the stock of America Online Time Warner, or "AOL" as it will be known on the New York Stock Exchange? During the Internet bubble of 1999, traditional ways of evaluating a company, based on the price of its stock and earnings, gave way to the Internet valuations, which project value based on such elements as revenue, website traffic and growth potential. But how does an analyst project value on a huge hybrid company -- half Internet, half media? "I would argue that AOL has not been an Internet company since the merger was announced [on Jan. 10]," says Jordan Rohan, a technology analyst with Wit SoundView. "Goodbye multiple and hello predictable," Rohan adds, referring to the inflated price-earnings multiple by which many technology companies are valued. Stability in revenue stream Predictability comes in the form of a diversified revenue stream both from media content and distribution. "This brings stability," Rohan emphasizes. The merged entity will bring in cash from well-known sectors such as cable systems, cable networks, Internet access services, television syndication and publishing. Rohan, who started to value the merged entity in early autumn, calculates the merged companies' value on a traditional price-to-earnings model and has come up with an $80 target price for the stock. Covering a media company will be new for Rohan, since Wit SoundView only covers technology firms. (Brokerages that cover both the media and Internet sectors are in the process of determining which analyst, its Time Warner or AOL, will get to cover the merged entity. In many cases two analysts, one media and one Internet, will evaluate AOL-Time Warner.)