News and rumors that the biggest merger in the U.S. would be approved sent shares of America Online (AOL Quote - Cramer on AOL - Stock Picks)and Time Warner (TWX Quote - Cramer on TWX - Stock Picks) higher today.
Stories in both
The Washington Post and
The Wall Street Journal suggested that
Federal Communications Commission approval was imminent for the $111 billion deal. So did news reports of the sudden cancellation of a speech by FCC Chairman Bill Kennard today, leading to speculation he was called away to work on the deal.
AOL closed up $2.04, or 4.8%, to $44.89. Time Warner rose $2.60, or 4%, to $67.
AOL and Time Warner executives also offered upbeat projections for the postmerger company, according to a research note from
Morgan Stanley Dean Witter.
Executives at a MSDW conference reiterated their confidence that the combined company could achieve earlier estimates of $40 billion in revenue for calendar year 2001, according to the note.
Investors have shared that optimism about the deal and its effect on the companies. While AOL is trading way off its 52-week high of $80, in the past week, the stock rose 38.6%, after closing at $32.39 on Jan. 2. Time Warner rose 34.3% during the same period.
News reports downplayed further restrictions from the FCC on AOL's dominance in instant messaging, which reportedly was one of the last few sticking points in the approval process.
Now that expectations have been raised, approval would best come soon. "If it seems like it is going to take weeks instead of days, then people will become concerned," said analyst Andrea Rice of
Deutsche Banc earlier this week. Her firm has done no recent underwriting for AOL.
In fact, there was a touch more optimism about Internet advertising this week, at least based on reaction to ad-dependent plays
Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) and
DoubleClick (DCLK Quote - Cramer on DCLK - Stock Picks).
Both Yahoo! and DoubleClick have been holding on to their admittedly reduced valuations in the week before they report their fourth-quarter earnings.
Yahoo! closed up today 38 cents, or 1.2%, to $30.50. This was on top of a 10.8% rise yesterday. Yahoo! reported today after the close that while it met Street estimates for the fourth quarter, it expected next quarter's revenue to be as much as 25% below earlier estimates.
"At this point, the fears of slowing ad growth are already well reflected in the stock. It's already had its correction," predicted analyst Fred Moran of
Jefferies and Co., although after-hours trading had Yahoo! falling on the news. Jefferies has done no underwriting for Yahoo!.
DoubleClick, which reports after the close tomorrow, is likely to suffer from Yahoo!'s announcement. Shares of the leading Internet ad agency rose today, finishing up 88 cents, or 7.6%, to $12.44, their highest point in nearly a month. Today's gain was on top of an increase of more than 20% yesterday.
John Raess
RSS
