FCC Clears AOL's Time Warner Buy, Removing Last Hurdle to Megadeal
Updated from 7:28 p.m. EST:
The Federal Communications Commission's approval of the deal paves the way for AOL, the nation's largest online firm, to formally acquire Time Warner, the nation's biggest media and entertainment company, creating a multimedia colossus. The FCC approval requires the companies meet three conditions. AOL and Time Warner have already made concessions to a number of regulatory agencies as the deal, which lost some 40% of its value during the stock-market plunge of the last year, wended its way through European and U.S. government channels.
The merger was approved by all five FCC commissioners, though only three of them voted for the imposition of the new conditions. "AOL and Time Warner, you've got approval," commented commissioner Susan Ness, one of the majority.
Time Warner, AOL moving in lockstep
The FCC's ConditionsIn the wake of the FTC's requirement that AOL Time Warner ensure that unaffiliated Internet service providers have access to the company's high-speed infrastructure, the FCC added a few more measures designed to "plug the holes" in the FTC agreement, in the words of FCC Chairman William Kennard. AOL Time Warner won't be able to force subscribers to independent ISPs to go through a "first screen" of an ISP affiliated with AOL Time Warner (a display similar to the Microsoft (MSFT) Windows display that comes on each time computer users turn on their computer). Independent ISPs are guaranteed an independent billing relationship with their customers, so they don't have to bill them through AOL Time Warner. Independent ISPs are guaranteed the same technical performance as affiliated ISPs, and the FCC has the authority to review contracts between AOL Time Warner and independents. In the area of instant messaging -- a business that doesn't amount to much financially now but
Big DealThe deal values Time Warner at nearly $100 billion, making the AOL Time Warner deal one of the biggest U.S. mergers ever, as ranked by the value of the target company. Thomson Financial Securities Data valued Pfizer's (PFE) acquisition of Warner-Lambert last year at $90 billion, and the 1999 creation of ExxonMobil (XOM) at $86 billion. AOL's stock has suffered along with the rest of the Internet sector over the past year; on the eve of the merger announcement a year ago, AOL's stock was trading at $73.75, putting the value of the deal initially at more than $140 billion. The resulting company, to be known as AOL Time Warner, expects to report $40 billion in revenue for the 2001 calendar year and $11 billion in earnings before interest, taxes, depreciation and amortization -- up 30% from 2000, on a pro forma basis. The empire will continue its predecessors' dominance in music, movies, television and the Internet. It will also be an experiment, on perhaps the grandest scale possible, of the opportunities created by merging old media and new.
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