AOL-Time Warner merger

[Mikoid]

Read about it here: http://cnnfn.com/2000/01/10/deals/aol_warner /

It's the biggest merger in history, with the new company valued at US $350 billion. The merger reflects the Internet's role in the new economy.

I wonder what kind of consolidation we are going to see in related industries in response to this unprecedented event?

- Mikoid

[batang uliran]

Mikoid:

Lots :)

[nix]

Wow, now this is a communications and entertainment powerhouse if I ever saw one! Holy Moly!!! That makes them, what, the second or the third biggest company in the world? Next to Microsoft, GE, or IBM?

[Kamatayan]

Nix: It might interest you to know that in terms of revenues, Microsoft isn't even in the Fortune Top 100 (and that's just for US companies - this always surprises people), the merger would put AOL Time Warner somewhere along the Top 70-80 companies. Globally they probably wouldn't even be among the top 200...

What was surprising to me was that AOL had more profits than Time Warner and had a bigger market capitalization, although Time Warner had more revenues. AOL has definitely become a behemoth...

[batang uliran]

The fact that Microsoft isn't in the top 100 in terms of revenue isn't surprising. The traditional leaders in this area are the car companies, the oil companies, the food companies, and the like. What's important though is profit and Microsoft is right up there.

What Nix alluded to is market cap and in this measure, Microsoft and GE are kings. GE I believe holds the distinction of being the first company with a market cap of over $500B. It has since been overtaken by Microsoft with a market cap of $585B. For comparison, here are some market caps of US companies:

Coke - $441B
GM - $47B
IBM - $215B
ATT - $165B
Exxon-Mobile - $290B
Yahoo.com - $109B
Walmart - $296B

The AOL valuation vis a vis Time-Warner jut goes to show that the internet is very hot and very in and the market right now is willing to value these types of companies looking forward many years! For instance, Microsoft is a valuable company but more than Exxon-Mobile and IBM put together? Or Yahoo.com worth more than twice General Motors? Ridiculous isn't it?

[Kamatayan]

BU: Yeah market capitalization of Internet companies is really ridiculous these days. Most of them don't even make a single penny of profit and yet they're valued more then multinationals with a long tradition of profitability and growth... If I were a stockholder I'd pray that I won't be holding any of their stocks when they come tumbling down...

[cianoy]

AOL's acquisitoin of TWX was a strategic move. TWX has a pile of debt and gives significantly lower returns. That's probably why the shares of AOL have been declining as of late. In a financial sense, it wasn't a good buy.

However, similar to most internet companies, investors actually value them according to what they think will be in for us in the future, and not according to their track record of profitability, nor sound management.

As an investor, I am enticed by such companies. I'm willing to pay big bucks now for a promising future. I guess I would just suggest that people take profits every now and then.

[Alexia]

uhm I'm kinda new here.. and I don't have that much experience on stocks.. but I have stocks and now I don't know what to do. Is it a good time to buy AOL now?

[p.i.joe]

I agree with Cianoy's analogy that AOL's acquisition of TWX was a strategic move. Noticeably this was done in a veil of secrecy, forged over the weekend without the media glitz that usually accompany such an event.

AOL's move I think, had something to do with the Federal Trade Commission's "hands-off the internet" posture. This controversy started about 6 months ago, when internet and cable service providers were embroiled in a bitter dispute over the regulation of the internet.

The issue: broadband vs. dial-up services. Internet giant AOL whose core business rely on dial-up services was suddenly faced with a major threat-broadband services courtesy of the cable companies.

Broadband service could potentially be 10 to 100 times faster than the current dial-up service. This I think put AOL's acquisition of TWX in perspective.

Alexia: I'm as surprised as you are when AOL's stocks started plummeting since the acquisition. I'm no expert in stocks also but my intuition tells me that among other things, the stock market as a whole is reacting to the federal reserve's meeting this 1st week of February.

[batang uliran]

I'm not sure we can blame AOL's fall on the Fed's meeting. For one thing, the rest of the market has not dropped to a similar degree and also, the impending rise in interest rates is a foregone conclusion given the inflationary numbers of the US economy. I think AOL's fall has to do with the realization that it is overvalued at this point - something confirmed by the merger since the valuation numbers did not follow the market caps of both companies at the time of the announcement and instead, valued AOL at a lower price than what its stock was currently trading at.

[f0r5aK3n]

Alexia: I thought you already had AOL stocks?? what happened to the ones you already had?

[Alexia]

Jonny, I have still have some.. but I sold some before it went down and bought this one (Perl) that I thought will go up.. yes it went up nga but after 2 days it went down.. so now I decided to keep it for a while, I don't want to lose money kasi hehe