AOL and Time Warner in $350bn mega merger

AOL and Time Warner have announced plans to merge in an all-stock deal worth, according to a joint release, $350bn.

The formation of AOL Time Warner brings together brands such as AOL, CompuServe, ICQ, and Netscape from the AOL stable, with household names such as CNN, HBO, Time, Warner Bros and Warner Music owned by the media giant.

While the merger is subject to regulatory scrutiny and calls into question AOL's alliance with Bertelsmann in Europe, the deal will give AOL high-speed access to Time Warner's cable customers.

AOL has been at loggerheads with cable companies - many of which are now backed by Microsoft - for many months.

Gerry Levin, chairman and CEO of Time Warner, and the CEO of the new entity, said: "This represents the digital transformation of Time Warner."

He denied the deal is about size, but rather the natural fit between the two companies. He also noted Time Warner came into existence through a merger exactly 10 years ago, making it on paper newer than AOL.

Steve Case, AOL chairman and CEO, will become chairman of the new group. AOL president, Bob Pittman, will become a co-chief operating officer of AOL Time Warner along with the flamboyant Ted Turner, who has already voted his 9 per cent stake in Time Warner in favour of the deal.

AOL's Pittman said: "This is the perfect one plus one equals three opportunity... It literally blows the lid off our advertising and ecommerce potential."

AOL will own 55 per cent of the new venture, Time Warner the remaining 45 per cent.

John Maroney, principal consultant at Ovum, said: "For Time Warner shareholders this is a chance to buy into a highly valued stock at a good rate. For AOL, it means stability."

However, he added that the companies may encounter problems because they are coming at the deal from two different industries, and Europe - given AOL's partnership with Bertelsmann - may prove difficult.