AOL, Time-Warner to Merge

The balance of Internet valuation has finally moved into the realms of major acquisitions. Last year, big mergers were in the tens of billions of dollars and mainly involved Internet companies merging with other Internet companies. With this deal, AOL is showing that Internet dollars are very powerful.

The Internet comes of age

A significant line in the AOL press release:

When complete, America Online’s shareholders will own approximately 55% and Time Warner’s shareholders will own approximately 45% of the new company. The stock will be traded under the symbol AOL on the New York Stock Exchange.

This essentially means that this is not quite a merger of equals but one where AOL shareholders will make more out of the deal than Time-Warner’s. It also means that Internet players are now taken very seriously, possibly supplanting traditional companies.

A major landscape change

Beyond the massive headline also comes a major landscape change. For starters, AOL Time-Warner will now be massive enough to compete with Microsoft. Microsoft currently stands at about $587 billion in market capitalization and AOL Time Warner will have a bit over that in terms of capitalization.

Furthermore, the new company has major holdings in every media field: TV, Radio, Music, Books, Movies, Online. This means that this is the emergence of the first completely cross-media company in the world.

Previously, companies had dominance in either online or offline spaces but not in both areas at the same time.

This also means that Yahoo!, [email protected], MSN, and other players on the portal space have to react very quickly. They might need to be able to offer access as well as content production and content delivery. Over the next year or so, expect one or two of those to essentially fold.

This deal also heralds the emergence of the click and brick business model. Much like many years ago, online players were talking about brick and mortar shops not having an online strategy, it has now become increasingly apparent that online companies need to look to the offline world.

Last but not least, it makes it possible to have Internet companies acquire or merge with non-Internet companies. Now that Time Warner has led the way, it will not look as bad if K-Mart were to merge with Amazon.com, or Doubleclick were to buy a large .bam advertising agency like Ogilvy, for example.

The old Chinese curse always said may you live in interesting times. Our times are definitely interesting. Whether AOL and Time-Warner manage to accomplish this merger is still up for debate (big mergers are very difficult and often fail to produce the value they herald) but it is now obvious that we are moving into a brave new world, where the smaller players might have to find a new way to fight the new giants created from such mergers.

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