• Home
  • Investment
  •  
    Retirement
    • Pensions
    • Income
    • Investment
    • Regulation
    • Estate planning
    • Equity release
  •  
    Your profession
    • Adviser tips
    • Business models
    • Companies
    • People
  • Regulation
  • Tax planning
  • Protection
  • Diversity
  • Events
  • Whitepapers
  • Industry blogs
  • Multi asset
  • Newsletters
  • Sign in
  • Events
    • Upcoming events
      event logo
      Retirement Planner Forum 2018

      Retirement Planner is committed to delivering best practice advise and discussion to our audience of professional retirement advisers and planners. This half day conference includes the opportunity for interaction and debate between delegates and speakers as they share unique insights.

      • Date: 15 Jun 2018
      • The Waldorf Hilton Hotel Aldwych London WC2B 4DD, London
      event logo
      Retirement Planner Awards 2018

      The annual Retirement Planner Awards is taking place on Friday 15th June 2018. Submit your entries by 6th April.

      • Date: 15 Jun 2018
      • The Waldorf Hilton Hotel Aldwych London WC2B 4DD T, London
      event logo
      Investment Marketing and Innovation Conference 2018

      The Investment Marketing and Innovation Conference returns on the 29th June 2018 at The Brewery. Join us to hear about all the marketing trends.

      • Date: 29 Jun 2018
      • The Brewery 52 Chiswell St London EC1Y 4SD, London
      event logo
      Investment Marketing and Innovation Awards 2018

      The Investment Marketing and Innovation Awards are back and are bigger and better than ever! With further categories to keep your creative juices flowing we are pleased to be back rewarding the hard working innovative people and companies in the investment world. Deadline to enter Friday 20th April.

      • Date: 29 Jun 2018
      • The Brewery 52 Chiswell St London EC1Y 4SD, London
      View all events
      Follow our events

      Sign up to receive email alerts about our events

      Sign up
  • Whitepapers
    • Latest Whitepapers and Reports
      When only the best will do in multi-asset funds

      Active managers who follow a rigorous, long-term investment approach, can boost the performance of multi-asset funds.  Read more about the case for including actively-managed funds in multi-asset portfolios. 

      Capital at risk. 

      CI064244  02/2018
      Download
      Friend or Foe: Bond markets in 2018

      As central banks move away from ultra-loose monetary policy, and the global economic expansion matures, bond fund managers will need to ensure their portfolios draw on a truly diverse range of sources of return and carefully consider portfolio risk if they are to generate yield in the current market environment.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Sign in
  •  
    •  

      Personalise your on site experience

      Download and use the apps

      Access your subscription from outside of the office

      Get relevant news and insight straight to your inbox

      Sign in
     
     
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • RSS
    • Twitter
    • LinkedIn
    • Newsletters
  • Register
  • Industry blogs
  •     Multi asset
Professional Adviser
Professional Adviser
  • Home
  • Investment
  • Retirement
  • Your profession
  • Regulation
  • Tax planning
  • Protection
  • Diversity
 
  •  

    Personalise your on site experience

    Download and use the apps

    Access your subscription from outside of the office

    Get relevant news and insight straight to your inbox

    Sign in
 
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
Professional Adviser

Content is now key to value in media

  • /home/progs/thaira/archive/invweek/mark/us/200001/31us02.xml
  • 24 April 2003
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
0 Comments

The $300bn merger between America Online and Time Warner was initially met with euphoria, leading to...

The $300bn merger between America Online and Time Warner was initially met with euphoria, leading to surging stock prices for both companies. Since then, both stocks have come under pressure, with AOL's stock price dropping 15%.

The terms of the deal mean that Time Warner shareholders will own 43% of the combined company, will have 50% of the board seats and will have the chief executive officer position despite having a market value substantially lower than that of AOL at the time of the merger. AOL is therefore putting a substantial discount on the value of its own stock to achieve the merger.

The reasons for the merger are fairly clear. AOL gains vital access to Time Warner's cable customers, who make up 20% of US households, and will ultimately offer broadband (high speed) internet services over cable.

For Time Warner, AOL's internet services (which reach 20 million subscribers) offer huge opportunities for delivering proprietary content to online users. The company has unique properties in news and entertainment (including CNN, TNT, Cartoon Network and Warner Brothers), publications (Time, Fortune and Sports Illustrated) and music (where the company has a 25% share of the global market).

Some analysts have viewed AOL's move as a defensive action since its core subscription-based internet service is under competitive pressure. AOL still receives nearly 70% of its revenues through online subscription fees, but the introduction of totally 'free' internet access services, from companies such as NetZero in the US, mean that subscription fees are likely to fall, reducing AOL's future profit growth.

The migration of users to broadband internet access, through cable or high-speed telephone lines, was also a potential problem for AOL since nearly all of its users access AOL's services through narrow-band (slow-speed) technology. McKinsey & Co forecasts that in 2004, 42% of online households will have broadband access, up from the current 4%.

The merger is not expected to close for at least a year and other uncertainties lie ahead. Like any mega-merger there will be corporate culture clashes, management's attention will probably diverted by internal politics and employee retention could become an issue because some influential employees may leave to join other, higher growth internet companies.

For investors, there is uncertainty about how the merged company should be valued. Prior to the merger there was a huge gap between how investors valued Time Warner and AOL, reflecting the differences in future revenue and earnings growth. The merged company is expected to grow revenues annually by 18-20%, slower than AOL's 30% growth rate but higher than Time Warner's 8-10%. The current AOL stock price suggests investors are valuing the merged company mid-way between the two ends of the growth spectrum.

The AOL merger also has wider implications for other media and content providers, distributors and internet companies. For media and content providers the merger highlights the value that should be ascribed to proprietary 'content' assets. For cable companies and AT&T, the distributors of content, the merger clearly vindicates the future of cable as a means of providing broadband internet access.

For internet companies the implications are less clear. AOL is a unique company in the internet space and there are fairly strong synergies with Time Warner. For other internet companies it is much more difficult to see natural merger candidates in either the content or distribution segments.

However, given the high values currently ascribed to internet stocks, we would not be surprised to see other mergers, using internet stock as the currency, to acquire real world assets.

Sean Daykin is investment manager at Norwich Union Investment Management

Related articles

  • Which investment firms featured in the UK's top 50 employers for women?
  • Govt 'should double' tax exemption on employer pension advice
  • PA360: Advisers must embrace outsourcing to ensure profitability
  • Failure to legislate for default pension guidance 'leaves bitter taste'
  • PA360: Wealth managers should be offering protection
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  

More news

The Times' list points out 50 firms making gender equality a priority
  • Investment
Which investment firms featured in the UK's top 50 employers for women?

2018 list revealed

  • 25 April 2018
  • Pensions
Govt 'should double' tax exemption on employer pension advice

56% of employers want extension

  • 25 April 2018
  • Charging
PA360: Advisers must embrace outsourcing to ensure profitability

Advisers need to delegate and outsource

  • 25 April 2018
  • Income
Failure to legislate for default pension guidance 'leaves bitter taste'

Bill nearing final stages

  • 25 April 2018
our-children-ourselves
  • Regulation
GDPR and financial advice: Processing data on children

Ramifications for advice firms

  • 25 April 2018
Back to Top

Most read

PA360: Equity release on the cusp of 'revolution'
PA360: Platforms' value for money 'hard to gauge' - David Ferguson
PA360: FCA will find advice market non-competitive - Rory Percival
PA360: Advisers must embrace outsourcing to ensure profitability
PA360: Why IFAs must get intimate with clients - Paul Resnik
  • About Us
  • Contact Us
  • Marketing solutions
  • Terms and conditions
  • Privacy and Cookie policy
  • RSS
  • Twitter
  • LinkedIn
  • Newsletters

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017