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. Last Updated: 07/27/2016

AOL, Time Warner to Merge in $190Bln Deal

NEW YORK -- No. 1 Internet services provider America Online Inc. is buying Time Warner Inc. in an all-stock deal that values the world's biggest media company at around $190 billion and creates an empire that reaches from magazines and movies into cyberspace, the two companies announced Monday.

Shares of both companies soared on news of the deal. Time Warner shares catapulted $30 to $95 in pre-open trade Monday morning, while America Online jumped $13 to $85.875. The enthusiasm sent shares of media stocks higher across Europe. The combined market capitalization of America Online and Time Warner reached $360 billion.

America Online chairman and chief executive Steve Case was named chairman of the merged companies, while Time Warner chairman and chief executive Gerald Levin will be chief executive, the companies said in a statement.

The combined company will create a media conglomerate with unprecedented reach across traditional and new media, allowing the delivery of programming from Time Warner's stable of brands onto the web and giving AOL access to Time Warner's U.S. cable television network to offer high-speed Internet access.

AOL Time Warner will bring together Time Warner's Time, CNN, Warner Bros., People, HBO, Sports Illustrated, Cartoon Network, Warner Music Group, Fortune, Entertainment Weekly, and Looney Tunes with America Online's AOL, CompuServe, Netscape, ICQ instant messaging, Digital City, and AOL Moviefone.

"We're kicking off the new century with a unique new company that has unparalleled assets and the ability to have a profoundly positive impact on society," Case said in the statement announcing the deal.

"By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained - providing far-reaching benefits to our customers and shareholders," he said.

Under terms of the definitive deal, which has been approved unanimously by both boards of directors, Time Warner and America Online stock will be converted to AOL Time Warner stock at fixed exchange ratios.

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, even though AOL's market capitalization prior to the deal was nearly twice that of Time Warner.

Time Warner has about 1.5 billion fully diluted shares outstanding; AOL has some 2.58 billion shares outstanding.

By uniting a major media conglomerate with a leading Internet company, the transaction is likely to have major repercussions across a broad sweep of industries.

The merger comes at a time when many big media companies are struggling to figure out how to harness the power of the Internet, and when Internet companies are increasingly looking to put entertainment and other content on their web sites to attract more customers.

The merger will be accounted for as a purchase transaction and is expected to be accretive to America Online's cash earnings per share before the amortization of goodwill.

The 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.

Ted Turner, Time Warner's vice chairman of Time Warner, has agreed to vote his Time Warner shares, representing about 9 percent of the company's outstanding common stock, in favor of the merger. He will be vice chairman of the merged company.

The AOL Time Warner board will consist of 16 members, with eight appointed by each of the current America Online and Time Warner boards. America Online's board now has 11 members.

Time Warner president Richard Parsons and AOL president and chief operating officer Bob Pittman will be co-chief operating officers of AOL Time Warner. Michael Kelly, senior vice president and chief financial officer of America Online, will become the new company's chief financial officer and executive vice president. The three executives will report to Levin.

A four-person integration committee has been formed to smooth the transition of the combination of the two companies, the companies said.

Separate from the merger deal, America Online and Time Warner also announced new marketing, commerce, programming and promotional agreements that will immediately expand various relationships already in place between the two companies.

These agreements include plans to include AOL software disks in Time Warner promotional mailings and product shipments, extending the "carpet bombing" marketing that helped fuel AOL's growth in the mid-1990s. In addition, Time Warner's RoadRunner Internet service will begin carry AOL services on its high-speed cable network while Warner Bros. stories will distribute AOL disks to shoppers.