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Special Event

Time Warner and America Online Announce Merger

Aired January 10, 2000 - 11:05 a.m. ET


CHARLES MOLINEAUX, CNN ANCHOR: Let's go to that press conference right now, the announcement of the link-up between Time Warner and America Online. You are looking at it live.


STEVE CASE, CHAIRMAN & CEO, AMERICA ONLINE: Well, thank you for coming and welcome. We are pleased to have all of you here with us today as we announce the merger to create the first global media and communications company of the Internet century, AOL-Time Warner.

I don't think it is too much to say this really is a historic moment, a time when we transform the landscape of media and communications. The merger of the number-one Internet company with the number-one media company will bring together the best of both worlds, and create one of the most respected and most valuable companies in the world, with strengths in every link of the media value chain.

Before I tell you more about what our new company means for the future, I want to say that I'm proud to stand on the stage today with Gerry Levin and his management team, including vice chairman Ted Turner and president Dick Parsons, and they will be speaking with you shortly; also with us is AOL's president, Bob Pittman, and our CFO Mike Kelly.

We are excited about joining forces with Time Warner because we share a common vision for the future. Time Warner is the first major media company to not only recognize but to fully embrace the new interactive world. Together we can change the future for the better.

America Online and Time Warner are already long-time partners, and AOL-Time Warner together will be a perfect fit as one company. We will draw on one another's strengths, combining the force of AOL's distribution capacity and Internet expertise with Time Warner's unsurpassed content and cable assets.

And as we enter this Internet century, no company will be better positioned to capitalize on the convergence of media, entertainment and communications than AOL-Time Warner.

Let me talk for a moment about how this merger will transform entertainment, and communication and commerce, and really have an impact on people's lives. In less than a decade's time, the Internet has revolutionized our economy and society, but we are still just scratching the surface. We are already seeing an explosion of new technology that is moving the Internet beyond the PC to the television, the telephone and a whole array of new connected devices. The next generation of high speed and mobile delivery systems will provide even greater benefits to consumers, anywhere they are, and everywhere they go.

This merger will launch the next Internet revolution, building on those technological advancements, and making the most of them to benefit our consumers. AOL-Time Warner's assets will include the world's largest Internet dial-up network, a whole array of cutting edge interactive technology, and cable systems that reach more than 20 percent of American household, making it the second largest systems in the nation.

But there is another reason why this merger is so important, and it is not its size, it is really the company's potential for innovation and creation of new value and new choice for consumers. If we are going to develop all of the Internet's great possibilities, we can't just come up with faster, more affordable ways to deliver information. We also have to enrich and expand that information, making it even more central and more valuable to people's lives.

AOL-Time Warner will offer an incomparable portfolio of global brands that encompass the full spectrum of media and content: from the Internet, to broadcast and cable television, to film, to music, to magazine, and to books.

I'm pleased to say that we are starting today on a real fast track by also announcing several groundbreaking new commercial ventures that really underscore the remarkable value of this merger. And we already are exploring many other ways to combine our assets to create innovative new products and services, as well as to enhance our current offerings.

Ultimately, this is about serving consumers. So I want to talk a minute about what this will mean for consumers. It will mean new kind of opportunities for entertainment. It will mean new opportunities for shopping for a variety of products and services that will improve their lives and add convenience to their lives. It will mean new opportunities to communicate, to learn about one another and learn about the world around them.

So what will this mean for our core business? The merger will speed the delivery of media-rich broadband Internet services to mass market consumers, and drive the growth of advertising and e-commerce across all of our combined brands. This is the first time a major Internet company has combined with a major media company, and the possibilities are truly endless.

And AOL-Time Warner will offer an exciting opportunity for our more than 80,000 employees to be part of an historic company that will set new standards for this new medium. Yet with all the benefits this merger creates for consumers, for our companies, for our shareholders, our business, and our employees, the true value of this union lies not in what it can do today, but what it will achieve in the future. At America Online, we have worked hard to fulfill our mission of building a medium essential to people's lives as the telephone or television, but even more valuable. Time Warner shares that vision, and this merger advances the day when that vision becomes a reality.

In short, we are kicking off the Internet century with a unique company with unparalleled assets, and unprecedented ability to accelerate the next Internet revolution, and an unsurpassed opportunity to have a positive impact on society.

We look forward to building a company that will be among the most valuable and most respected in the world. I will be chairman of the board, focusing on the things I do best and care the most about.

The hard work of managing this diverse company and these 80,000 employees will be shouldered by Gerry Levin. Gerry and I have become close friends over the past year. It started when we were co-chairing the Global Business Dialogue, and then a few months ago, we spent a week together traveling through China, and in the last few months as you might imagine we spent a lot of time together, and I'm really excited about this opportunity.

I first called Gerry in October, and said: I think this would be an extraordinary strategic merger, a merger of equals. I would like you to be CEO. I would like to be chairman. Over the last couple of months, we have honed that. And one of the reasons I'm so excited about this merger is not just the array of brands, the technologies, the assets and so forth but the strength of our management team and the leadership that will come from Gerry Levin.

So now please hear from Gerry Levin.



It gives me great pleasure to welcome the suits from Virginia here to New York.


This is a very special day, obviously, but it does have historic significance for me, so I can dispel another view. It's exactly 10 years to the day January 10, 1990, when Time Warner was formed, so in fact Time Warner is not old media, AOL is in fact older than Time Warner by several years.

For me, this represents the digital transformation of Time Warner. For those of you who know me well or who have read things that I have distributed within our own company, that's been my conviction, and with this transaction that dream is realized. But it also, I think, after you digest this, has nothing to do with the size or indeed the preeminent position. What you will come to know, as we know instinctively, that there is a natural fit between these two companies, not just because there's a subscription-base, there's the same kind of brand building, consumer attention, new media interactive service orientation, but both are blue-chip companies with very significant management, very aggressive, very significant boards, and probably most significantly, as you heard Steve speak, we care not only about value creation, which is taking place on Wall Street today, but also the values that we feel that we can leave as a legacy eventually and do things through this company worldwide that have a lot to do with the social destiny of people everywhere. That's the conviction that we all share.

You have all the obvious statistics here. When you look at the 22 million subscribers to AOL and CompuServe; the 135 million additional registered users for AOL; the 120 million readers of the more-than 30 magazines of Time, Inc.; the 35 million subscriptions to HBO, it's paid television services; the 20 million homes passed with digital cable; for TNT and TBS, our entertainment networks, they are seen by 75 million homes; and probably very significantly, and you'll hear from them shortly, CNN is really accessible to a billion people around the world. And in fact, I view us now our combined company as the trustees for a remarkable heritage.

Also, for those of you who know me well, I am a broadband person, I am an interactive guy, I've been building networks all my life, and this really provides the opportunity, just as we're in this remarkable digital century and Internet world, to bring to bear everything from communications to content to distribution in really a socially- meaningful way. Even on the entertainment side, we've been saying this for some time.

And now I'm kind of reunited; we were separated at birth with Bob Pittman, so that the music business -- by the way, for those of you who don't know, the establishment of MTV and VH1 actually took place in our company, our predecessor company -- and I feel one of our businesses that will benefit the most from the Internet is in fact the music business. Think back to the Warner Brothers movie "You've Got Mail," nicely promoted jointly with AOL.

So, as I look at the natural fit here, it is a very big idea, but probably most importantly for me, it's really the ability and the pleasure to work with a group of people who are bright, aggressive, socially-minded, hip, new-media oriented really to make a very significant future.

So, what I'd like to do now is, with some trepidation, turn the mike over to my...


You know, here we have in the same company Steve Case and Ted Turner; it is very, very exciting.


Ted, as you know, up until the AOL Time Warner merger, the most successful merger in the history of American business -- and I don't say that out of any arrogance, I just think it's been true -- was the Time Warner-Turner merger, and that was due in large part to the inspiration of someone who is probably the most unforgettable person in our land today, and he owns most of it anyhow...


Ted Turner -- Ted.


TED TURNER, VICE CHAIRMAN, TIME WARNER: Thank you, thank you, Gerry. I'll just be a moment.

Shortly before 9:00, last night, I had the honor and privilege of signing a piece of paper that irrevocably casts a vote, the first vote taken, a vote of my 100 million shares, more or less, for this merger, and I did it with as much or more excitement and enthusiasm as I did on that night when I first made love some 42 years ago; it was that -- it's that kind of a...


We are -- Time Warner is a company of winning brands and winning people, and so is AOL, and you put them together and, just like when we put Turner Broadcasting into Time Warner it made the company much, much stronger, this is going to be a much, much stronger company.

We -- I know that there's going to be some speculation with all the strong management and personalities that there's a possibility for some friction, but I don't think that's going to happen. I think we're all committed to making this thing work and creating the most exciting and socially-conscious company that the world has ever seen.

And I'm going to be very, very happy. I am very happy to be a part of it. And now it's my great honor to introduce our new coming co-COO Bob Pittman -- Bob.


ROBERT PITTMAN, PRESIDENT & COO, AMERICA ONLINE: Well, America Online and Time Warner are two companies that do see the world the same way: We see it with consumers at its center, and both of our companies build value for consumers through the creation and development of powerful brands that people know and love. In this merger, we're combining those one-of-a-kind companies and adding value to the powerful brands, consumer relationships and, as you heard, unique distribution channels through the creation of extraordinary new interactive products, services and commerce opportunities that neither company could fully create on its own. This is the perfect one-plus- one-equal-three opportunity. We are the missing piece of each other's puzzle.

Remember, not only is America Online the world's number-one online service, reaching 50 percent of all users in the U.S., but our Web brands, not including the AOL, our CompuServe services, boast an amazing 135 million registered Web users. Combined, our complete family of interactive brands reaches 80 percent of all Internet users. And we are in the process of extending those powerful brands to an entirely new range of devices and services, including AOL-TV, handheld devices and AOL Plus through our AOL Anywhere strategy. The addition of Time Warner brands and expertise makes the move beyond the PC all the more decisive.

At the same time, access to this unmatched family of interactive properties and services will dramatically accelerate the distribution of Time Warner's popular brands to the online world. Supported by our efficient infrastructure, these household names will become more accessible than ever to consumers in an Internet age, allowing them to achieve new levels of growth not possible without AOL's consumer relationships and distribution platforms.

As the Internet enters its next phase of development, AOL Time Warner will own the best portfolio of content brands and destination sites, and we will fully use those properties in moving them into a range of consumer products, services and commerce opportunities across the range of music, entertainment, news and communications that take full advantage of both companies' audience reach, scale and expertise.

Moreover, AOL-Time Warner will bring our trademark convenience and ease of use to the cable industry and broadband. AOL-Time Warner will have the capability to offer broadband access to virtually every Internet user in the country, via cable, DSL, satellite, or wireless. But the products we offer over these services, from AOL Plus to AOL TV, will offer more than just speed, they will deliver unprecedented ease of use and content designed for the medium that ensures a whole new high quality experience built around brands consumers know, use and trust. In short, will create a new standard of excellence in programming and communications heretofore unseen.

Plus, this deal literally blows the roof off our advertising and e-commerce potential. AOL-Time Warner offer be able to over our advertising and commerce partners packages that take full advantage of our unparalleled audience radio reach across this spectrum of interactive properties, networks, publishing and cable.

Together, the America Online and Time Warner brands offer over 100 million paid prescription relationships and hundreds of millions more through other media and interactive products -- and products.

From books to videos, to financial services to travel to communications, you name it, the possibilities for new commerce plays combining our brands are endless. In music, for example, we will bring together Time Warner's prestigious roster of established and new artists with America Online's industry leading on-line music delivery capabilities and mass market penetration, doing for the industry in the next decade what the CD did in the '80s. And believe me, we do know how to make it simple and easy to use.

The merger also offers significant opportunities to achieve efficiencies across the complete range of America Online and Time Warner businesses, as we cross-promote our extensive roster of brands. In fact, there is no being no better co-marketing partner for us than Time Warner.

Finally, this merger offers opportunities to further strengthen the two companies' international leadership, a critical factor, given the fact that this was the first year that the number of Internet users abroad outpaced that in the United States, and this disparity will continue to grow.

America Online is the global leader in interactive services with subscription services in 15 countries, and seven language, as well as complete global reach with our Web properties and services like ICQ, while Time Warner operates in more than 100 countries with thousands of employees abroad. The combination of these sources virtually assures a continued leadership position in the explosively growing international market.

There's no question, that this merger of the world's number-one Internet and media companies will literally transform the landscapes in both industries overnight. Most important, by combining our resources into the first media and communications company built on the power of the Internet, it will result in the most powerful engine for value creation in that industry that has ever been seen, and will speed up the adoption of the Internet for the benefit of consumers worldwide.

And with that, I would like to introduce you to my old friend and now my close colleague, Dick Parsons.



Let me tell you what this merger means, I will start by saying what it means to me personally. By putting these two great companies together, it means that I no longer have to follow Ted Turner as a speaker.


That's the good news. How do you compete with Ted?

The bad news is, I now have to follow Bob Pittman, so I guess I'll have to make it work.

Let me tell you what I think it means to three other important constituencies. First, our customers. You've heard described that essentially what we are going to be able to do in the new AOL-Time Warner is to take the most remarkable collection of stories and of content, of news and information, and through the vehicle of this phenomenal new medium called the Internet put it in the hands before the eyes and the ears of consumers all around the world, any time, any place, anywhere, and however they want to receive it.

It's significant to me to note that this is really the first major merger -- as far as I know, it is the first merger -- announced in the 21st century. And I think, when we look back on it in time, we will see that this is going to be the defining merger. This new company is going to define what we called in our press release the "Internet century." And it is for the reason that it combines the premier content, news gathering, storytelling, picture repository, music repository in the world, namely Time Warner, with the premier new age information and distribution medium, namely AOL. So I think for our consumers, our customers, this is going to be the beginning, clearly, of a new age.

And I would pause here to say also that it's been national policy at every level -- national policy, state policy -- to encourage the deployment of this new medium called the Internet as deeply into every American community as possible. And one of the things -- Gerry mentioned it and Steve mentioned it -- that our company, you know, we've been putting cable in an upgraded architecture in every American community that we serve, rich, poor, in every school that our cable passings -- that our cable plant passes.

And I think word that's on a lot of people's lips and a lot of stories that you read today about the coming digital divide, we are creating sort of a new set of two societies, those that have access to technology and those that don't, one of the things that we will stand for and I think makes me proud to be associated with all of these gentlemen is the fact that this company I think will be one of the leaders in terms of closing that digital divide, putting this new powerful medium in the hands of all Americans and indeed all peoples around the world.

The second constituency that I would speak to are the employees of our companies, some 82,000 of them, as Steve mentioned. This is one of those happy comings together, where opportunities are going to be created, not reduced. This is not a merger that is being driven by the fact that we can squeeze out employees and reduce our costs. This merger, the coming together of these two companies, are going to create innumerable opportunities for the existing employee basis of both companies, enabling them to have richer, more interesting, and ultimately more rewarding work lives. And I think that's important.

And then lastly, the third constituency that I speak to are our shareholders. I think, for both companies, this is a merger where, what AOL has has just been made more valuable by virtue of the alliance with Time Warner, and what we have has been made more valuable by virtue of the alliance with AOL.

And so, as I thought about how best to sum up what this means for our shareholders, the shareholders of both companies who will soon be the shareholders of the combined company, the motto of the state of New York came to mind. That motto is "Excelsior," ever upward.

So, with that, I would like to call to the microphone now our new CFO and my new friend and partner in sporting event participation, Mike Kelly.


Dick feels bad about following either Ted or Bob. I got to tell you, after following all these gentlemen up here and then being the last person between you and a Q&A segment, I am feeling real good right now.

Listen, you've heard a lot about the strategic opportunities that we see for the company, and the unique assets to brands, the combination here is so compelling, and I'm just here to say that the financial aspects to this transaction are just as compelling.

The merger, AOL and Time Warner, will strengthen our ability to generate revenue growth, EBITDA growth, free cash flow growth. These will be the defining measures of the true companies that enter the Internet century.

Let me first provide you just the overview of the transaction. This is an all-stock transaction that will accounted for, will be treated as a tax-free merger. Time Warner and America Online will be converted into AOL-Time Warner at a fix exchange ratios. Time Warner shareholders will receive 1.5 shares of the merged company for each share that they own of Time Warner. AOL shareholders will receive one share of the new enterprise. The transaction will be accounted for a purchase, and we're currently thinking it will amortized in resulting goodwill over a 20 year period.

There is no collar on the transaction. The normal customary and closing aspects we do -- both shareholder bases do require shareholders and the course will have the normal regulatory approval process as well. We do, however, expect the transaction to close by year-end.

We step back and look at the new combined organization on a pro forma basis it really is compelling. Sitting back in our first full year of operations we're looking at a revenue base with an excess of $40 billion, which has an EBITDA base in excess of $10 billion; on a stand-alone basis, those numbers. When we take that operation together, we should be able to accelerate the growth rates of both of those numbers.

Just to look at the aspects of it all, just one note that really stands out in all this: Today, the combined company has an excess of 100 million paying subscribers if you look across the base of cable, the publishing assets and what AOL has to bring to the party overall, a huge vibrant -- a paying customer base that we have the opportunity to look at.

And we're clearly off to a strong start in realizing those synergy. You take a look at some of the announcements that we put in the press release, today, it really is the tip of the iceberg if we really look for the synergies and benefits coming out in this combination overall. What we've been saying, that over time our first full year of operations a merged entity, the synergies will be approximately one billion dollars, really reflecting the value and the combination that these -- this enterprise will have overall.

In addition, clearly this transaction meets some of the -- meets heads-on some of the challenges facing both AOL as well as Time Warner, and thereby increasing the probability and highly likelihood of success in meeting those challenges. For AOL, this catapults the company into the broadband era with both the world class content and unmatched access. For Time Warner, this provides the fastest way and most efficient way to realize the value of its media properties in the Internet age. The combined company will have strengths at every point of the media value chain, including multiple brands, a vast array of content, strong distribution, extensive infrastructure. AOL Time Warner will now set the standard by which all other companies will be measured in this space.

Let me stop there and turn the podium back over to the Q&A session.


CASE: All right, now we come to the fun part, we want to take your questions, but I must say, one of the things that gives me confidence that this company will work well is the strength of this team and how well they have worked together in the last few days and weeks pulling this together, and how it didn't leak, which really shows that everybody's on the same page trying to make this new company work.

And here's how we're going to do the questions. Anybody who want to put up a hand we'd be happy to take your question. The way we're going to do it is, if they're easy questions I'm going to answer them, that's the chairman's prerogative. A little harder, they get to Gerry. If they're much harder, you know, Bob and Dick and Mike will answer them. If they're impossible, we'll give them to Ted.

First question.

QUESTION: Well, let's start off with Ted. Ted mentioned the possibility for some friction, here, and given the obvious difference in dress codes it seems that perhaps there might be some. Can you address that issue, how the corporate cultures will merge.

And question number two, what are the implications for the cable TV industry? Are you going to try to have every single cable operator carry AOL, etcetera? What are the implications for your competitors?

LEVIN: Well, let's start, Alan -- CNBC?

QUESTION: That's right.



You know, Ted is -- is always very forthright. Any big transaction, probably really the most significant risk is really a people risk. In this case, and what's interesting, is that most of our discussions, once Steve had put this on the table and the big idea is immediately apparent, and we did wrestle a little bit with valuations because of the way the market currently behaves, but most of the time was spent on what are euphemistically called the "social issues," and that is to say, how did the people work together.

Let me step back a second. There are two people sitting in the audience who really are responsible for this transaction, and that's Rich Besler (ph) and Ken Novak (ph).

And based on a lot of accumulated experiences the two of us have with a lot of transactions, you find out a lot about people as you're working through the various structures and how you deal with ideas, and basically I think what we concluded, that when you get underneath it, the companies are really very similar. They operate in very much the same way. They've grown substantially -- I wasn't being cute when I said that Time Warner is 10 years old; Time Warner is a construct of a lot of acquisitions over a relatively-short period of time, where people have had to have been assimilated and nurtured. That's what's happened at AOL. Also, very aggressive people who are driven not only for shareholder value but for the values of the company, and this is supreme irony that we have Bob Pittman, who I feel really grew up in our culture, and his expertise, brand building and everything he's done at AOL really came out of the way we behave.

So, I think in fact you're going to see that we have a team right away. I can't remember an announcement where there is right off the bat there are a list of commercial arrangements that have been made between the two companies that in fact, you know, how did that happen, how did that happen so quickly, and that really -- really came about as a result of people just getting together and pulling it off. So, I'm very optimistic.

The other thing I'd say is that in Steve Case you have a very unusual, courageous executive. I can't think of another instance in which somebody who has built a company, who has the standing that he has, to propose in the first conversation that, Gerry, you be the chief executive officer, as I certainly didn't ask, and that is a remarkable thing, and what he wants to do is probably unique in the annals of American business.

So, again, I wasn't being cute before to have Steve and to have Ted kind of working. There are very few companies that have that. And then you go to the management depth.

Your second question, then, I'll pass it on.

With respect to cable, broadband cable, cable modems, you know, essentially what you're going to see is, A, we're going to take the open-access issue out of Washington, out of city hall, and put it into the marketplace, into the commercial arrangements that should occur, to provide the kind of access for as much content as possible and for multiple ISPs, because that's really the history of the cable industry in any event. And I think what you'll see early on and very quickly are a lot of things that AOL can do that relate to an easy, enriched experience in interactivity and on the Net together with new forms of functionality that we haven't seen in the broadband cable industry, and obviously Time Warner Cable has a tremendous laboratory in which to make that happen. And the cable industry, traditionally, when things start working and the consumer demand is there and the P&L makes a lot of sense, then there's a lot of distribution in the cable industry.

CASE: Gerry said it very well, so I'll just be very brief.

The reason why we think this merger will work, and you've heard it several times, is because of the people aspect. We have spent a lot of time in the last couple of months really thinking through those issues, and we have unbelievable teams at both companies, and we believe we can mesh them quite effectively. Everybody knows that mergers are hard; ultimately it comes down to people.

And one of the reasons I proposed right out of the chute that Gerry be the CEO is he and Time Warner have tremendous experience in big mergers, initially with Time and Warner, which was a little difficult, more recently with Turner, which is one of the smoothest integrations in, I think, M&A history. So, the fact that Time Warner is a company and Gerry in particular as the CEO has such understanding of how to make these work, how it really is ultimately about people and how through this AOL Time Warner company we have a very diverse set of businesses with different kind of challenges, an unbelievable pool of talent, a lot of different priorities, protecting the journalistic ethics on the one side, trying to move into new industries aggressively on total side; there are many different priorities, many different subtleties. And I think we understand that, and have spent a lot of time in the last couple of months making sure there really was a mind-meld on those issues.

Just a quick follow-up on the cable side, we do think it's important that this company come right out of the chutes basically committed to the concept of consumer choice and ISP competition. That's why we included it in our press release. We have said for several years that we think for the Internet to flourish there has to be competition at the infrastructure layer. We always hoped that it would come through the marketplace as opposed to the government having to get involved. I think there's progress on that front with AT&T announcing a month or so ago their principals for open access and now today AOL Time Warner announcing a commitment to it.

So, the number-one and number-two companies in the cable industry are now on record supporting consumer choice, and we hope others not just in the cable industry, but in the wireless industry and others will join us in opening up the platforms.

Let's take another question on this side.

QUESTION: I'm going to go on a couple of the same issues. You have a lot of cooks on stage for this kind of -- a lot of people with "co"s in their title. I mean, there's going to be a power shift. How does that work out? At least you don't have the kind of power shifts that happened in the Viacom-CBS merger right away. But the second question is: You know, so as, you, the owner of cable systems, you want everybody to be able to surf on your wires? And at what kind of terms are you going to insist that they pay you to do that.

CASE: Well, I'll take the first one since Gerry owns that cable systems, and will till the -- by the end of the year when we close this. E -- it'd be presumptuous for me to answer that specific question in terms of what happens over the next -- in nine months or so.

But there are a lot of cooks on stage, but there is a -- using your analogy -- a big meal to serve here. We have an unbelievable opportunity to basically take the best of AOL, the best of Time Warner, this diverse set of businesses in television, in the Internet and so forth, and really try to figure out how to best make them work within their segments as well as how to expand those brands, those customer experiences, in new ways. So there are a lot of big opportunities here.

Gerry and I worked out very early what our relative responsibilities will be. I'll focus more on the strategic issues, I'll manage the board, I'll focus on policy issues, I'll focus on technology issues, I'll focus on investments, I'll focus on philanthropy, the things that I said at the beginning I think I do well and I really care. He'll be CEO running the company.

But when we say there's co-CEOs and Bob and Dick, we are going to work out over the next nine months or so prior to closing, through an integration committee with Ken Novak (ph) and Rich Pressler and Bob and Dick that will report back to Gerry and put a structure in place that we'll both sign off on. But we'll divvy up the responsibilities so it will be very clear which businesses Dick is responsible for and which businesses Bob is responsible. And, as you were suggesting, there's plenty there for a lot of fine chefs to oversee.

LEVIN: Yes, I'll start and then go to cable. I thought it was a plus that we had this group up here because it gives some indication of not only the depth, but you can, you know, look at body language and see the interaction or the relationships that already existed.


See, we've become a company of high-fives and hugs, which is...

In the cable industry, I think what you're hearing today is just to avoid the rhetoric or, indeed, change the lexicon and get back to what's really been basic in the cable industry. I'll give you a historical parallel: In the early days of the development of pay television and limited channel capacity, HBO was available exclusively on certain cable systems, and Showtime was available on others systems. And over time, it became clear not because anybody was beating the drums from a regulatory point of view, but it became very clear that you have to give the consumer as much choice from as many different providers to provide, really, for the cable operator the broadest value for the consumer.

And so we eventually adopted multiple services, and that's essentially what I'd like you to take away as the rhetoric for today, that -- put aside existing, contractual constraints or any network architecture statements. We are now in the last year of the digital build-out of our cable systems and are creating a highly expansive format.

And so, now, let's let the private marketplace work out the terms and conditions because it is in everybody's best interest to have as many different gateways into this enormous Internet community, to have content coming from many different places. It happens in our company all the time with respect to -- there is no one source. The cable system is particularly prepared to be a distribution source with near infinite digital capacity. That's where we are getting to, and now the commercial arrangements need to be established.

CASE: And we do think, from a policy standpoint, it is important to stimulate consumer choice and competition. But from a business standpoint, we welcome the competition. We believe we have great brands and great assets and we can compete effectively with other ISPs riding on a cable platform. So we welcome that competition.

Yes, over here.

QUESTION: Mr. Case, most companies these days seem to strip out their Internet business as tracker stocks to gain value. You seem to be doing the opposite. You seem to be importing a slower-grade stock into your business. Is that likely to have much of an effect on the sort of rate of growth in stock price that investors have seen? And will that be detrimental to your ability to do further acquisitions and to use your paper?

And to Mr. Levin, you have enormous experience of regulatory issues: What are the regulatory problems here?

CASE: As relates to the first question, we think this combined company really has an enormous presence in the Internet media businesses and will be one of the most valuable and hopefully the most respected company in the world, and we think it will be very easy to do other acquisitions down the road if we think it's appropriate.

There is, as you were referencing, sort of a valuation disparity between the so-called Internet companies and the so-called media companies, and, over time, we'd expect that to close as the assets converge together from a consumer experience standpoint. We wanted to be proactive in really making that happen. We worked through those valuation issues and basically came to a point of view that said that, even though when we closed on Friday, if you looked at the combined market cap of both companies, AOL had about 65 percent of the market value and Time Warner had about 35 percent of the value.

We also looked at the cash flow and AOL was contributing 20 percent of the value and Time Warner 80 percent of the value, and we just agreed on an exchange ratio that essentially resulted in AOL shareholders owning 55 percent and the Time Warner shareholders owning 45 percent. And this combined company will have in its first full year of business next calendar year over $40 billion in revenue and over $10 billion in EBITDAs. So it's a very significant company that really has the best of both worlds: the assets that are necessary to take the Internet to the next step as well as the Internet expertise that can take the Time Warner brands into this network future.

LEVIN: Let me -- a little tail on that first part then go to the second question.

We believe strongly that the new currency of AOL Time Warner, with the kind of numbers that Mike mentioned and, right out of the box, talking about a billion dollars of synergistic EBIDTAs, and what Mr. Pittman mentioned in terms of the turbo charging of both companies, that you will have a new currency, the AOL Time Warner stock. And you can be assured that this is going to be a very aggressive currency and a very aggressive company in terms of the things that it wants to do.

OK, let's go to the regulatory side. In addition to the normal FCC or franchise transfer requirements, obviously there's a HartScott Rodino filing. With respect to that, I'm not certainly going to opine as an antitrust lawyer, but it's my view that this is really not only the first of its kind, the first out of the box in the new century, but there are no overlapping -- you know, this is a media company buying other media properties or an Internet company buying other Internet space companies. In fact, it's quite complimentary from all the traditional metrics that you would use.

And, in fact, when you look at worldwide networked society, which is basically what we have, which is under no central control -- indeed, what Steve mentioned before, we're co-chairs of this global business dialogue -- part of our intention -- it's never happened before -- we have a group of companies that have come together, basically, to say to the worldwide regulatory community, this thing is instantly available everywhere and you can't have disparate forms of regulation.

So, it's my view that this is kind of a clean break with the past and represents something totally new and, therefore, I don't see a regulatory problem.

CASE: I have two quick things to add, that, in the last couple of months as we talked through all these issues, I think one of the things that Gerry needed to make sure I understood was some of the traditions of Time Warner; the traditions of Henry Luce, for example. It's not just about making money, it's about serving the public interest, and that's something that resonated.

Similarly, I needed to get comfortable, that Gerry understood that we needed to operate on Internet time and need to be aggressive in pursuing business opportunities. And there really was an agreement on those ideas. We both recognized that both companies needed to do some things a little different, and together we really had an unbelievable opportunity.

On the last point, on the regulatory side, it is very interesting, if you look at this combined company, there really is a wonderful company with a diverse set of assets, but no single line of business really dominates its category. So that we don't expect there to be any antitrust issues. The big issue we thought would be related to open access. We want to just take that off the table on day one by committing to that principle.


QUESTION: Steve Young, CNN. Just one follow up on regulatory and one other. One antitrust expert I spoke with this morning said that, if AOL had exclusive or preferential access to Time Warner content there could be regulatory issues. So could you elaborate a little bit on that point? And it is tantalizing to think what might be going on in Redmond, Washington and in Mr. Armstrong's board room. You must have thought about this. How do you expect competitors, like Microsoft and AT&T, to respond?

LEVIN: Well, let me start with the first question. Were you surprised this morning, Steve? QUESTION: Yes.

LEVIN: Good.


LEVIN: Excuse me for a second. In our company historically, because that's why these issues are so interesting. We have faced it over and over again. There is no -- We have a lot of networks. The content from Time Warner does not go exclusively into those networks. We make the best news possible in terms of realizing value, and as a matter of fact, the whole concept -- This is why it's interesting to grow up in a network community -- that you really give value to the consumer by going to as many different places as possible.

The benefit, however, is knowing that it's in your company, so you can kind of count on it, but at the same time, there's a drive to make money by distributing your material. So you will see, even today, we made an announcement about "People," "Teen People" and "In Style," as well as "Entertainment Weekly" that are on AOL. But there are lots of other properties that we have that may be in other places. Entertainment is going to be on AOL. But entertainment is going to be doing other things.

So I think once you keep that network model in mind, and indeed the way the cable system operates, you can see that both from a commercial and marketplace point of view, but really from a public policy point of view, these things actually dovetail.

With this second one, I will let Steve answer the Redmond, Washington question. With respect to Mike Armstrong, we both spoke to him this morning. There are very good relationships -- I was going to say among the three companies, I should say between the two companies, and I think none of that is going to change.

CASE: It's always difficult to project what things will do and what the ripple effect will be in terms of other reactions or consolidation or alliance. I think more people will recognize that what we're doing make strategic sense. It is the way to take the Internet to the next step and transition media into this networked world. So I certainly wouldn't be surprised to see other things like that. I'm not going to speculate on what Microsoft's strategy might be or any other company.

I'm sure there will people who reassess this. If I was them, I certainly would reassess it, and try to understand what kind of impact is. Our philosophy all along, since we started 15 years ago, was to try to partner with as many companies as possible and really focus on doing the things well that we really understand and partner with others where it's appropriate.

Microsoft, for example, we certainly are very competitive with. We consider them our largest competitor. But there are areas where we partner. And that notion of competition I think will continue to be the trend in the future. One of the points really -- the first part of your question, it is very important to understand, within Time Warner, there is a culture that recognizes there are diverse businesses with all kinds of subtleties to them. So, for example, even though they own HBO -- and I Jeff Fuch (ph) is here -- HBO carries everybody's movie, even though they own the Book of the Month Club or music clubs, they carry everybody's books. And that is really a key principle. It is not simply a matter of taking this content and using your distribution in any kind of exclusive or exclusionary way.

We did the same thing with AOL. There are many of our brands, Mapquest, for example, which we just acquired, is distributed by thousands of Web sites. So you have to look at each of these really as an individual opportunity, an individual brand, and do what's best for it. But the bias should always be towards partnership. No single company, even AOL-Time Warner, can go it alone.

LEVIN: You know, just to put a final tail on that, it is just a truism in the 21st century that all of these companies will have interlocking relationships, where you are competing and in several different zones and categories and you are actually partnering in others. It is true with Microsoft. Microsoft is a partner of Time Warner in certain areas and competitive in other areas.

CASE: Yes. Over here.

QUESTION: I have two quick questions. One is, you look at the board over there, you see most of those brands are -- that are most recognizable brands are Time Warner brands, the majority of them. Not that the AOL brands are not recognizable, but the inventory of recognizable brands in possession is at Time Warner. I am curious what your decision-making process was at Time Warner being in position, not only of those brands, but also the capital that Time Warner has in its possession that you decided that it was a better decision for Time Warner to accept 45 percent of the equity in a new company, as opposed to taking your capital and those brands and building your own Internet presence, considering how low barriers to entry are -- tend to be on the Internet and the answer can't be because your getting a huge premium for your stock?

LEVIN: That's wouldn't be my answer at all.

QUESTION: If I add -- why Mr. Turner voted in favor of it, and what your feeling was as you looked at it? And now I am finished.

LEVIN: Obviously, I'm very proud of all the brands. I view this transaction now, I mean, I've been, as a career, in building brands and accumulating brands, and getting the synergistic value out of those brands. Just as Steve said before, if you, you know, looked at the relative contributions, you know, today it may be that Time Warner has 80 percent of, you know, both the revenues and the EBITDA.

But here's the judgment I made, and I think it's very significant. First of all, the market capitalizations in the Internet space I accept. Because I think something profound is taking place in this century. And while most people may have some difficulty with those valuations, in fact, to me, it's really quite simple, because it's a belief that the present value of future cash flow is so significant that that's how you justify it.

And so, I believe that, and so for my company at this point, with those brands and with its heritage and with the capital which we are investing, when Steve and I started to having our conversations, it just became clear to me that I could accelerate that my own development, but also I still how I could accelerate AOL's development. And that in my own mind, I've been saying for the last year that it's probably likely in the year 2000 that we are going to see somebody transact and figure out how to bring these companies together.

And I decided that I wanted us to be first, because we could be proactive and that in fact the new currency that we could provide would enable us to continue to grow. And then, as we put the people together, I realized, and as I said, we have in the press release commercial arrangements that in fact the numbers look pretty interesting.

I don't think there's a merger where it is on day one said: It is not going to be that hard to get a billion dollars of synergy and EBITDA precisely because we have these multiple revenue streams. And then I sat back and really analyzed it, and said: AOL is distinctive, not only because of Steve and Bob and Mike and all the people there. But this is like coming home to me. It is a subscription-based, distribution, consumer brand building business. And once you amortize the cost of building that infrastructure, getting the consumer relationship, you can then build so many things on top of it with a tremendous margin. Well, that's what we've done at HBO, that is really what we have done in the publishing business.

So, to me, I saw the power of that combination. And as I looked around, and looked at other companies and other opportunities, it really came down -- there's only one combination. So I had concluded, either we would do something with AOL, or we would build ourselves, but this is infinitely preferable.

CASE: I think -- before Ted responds -- I think the next few days different people will cuts at what this is. Some will say, Time Warner got the better deal because they got this premium, and Gerald Levin is CEO. Others will say, AOL got the better deal because they are contributing 20 percent of the cash, they will got 55 percent of the company, and all kinds of different permutations of that.

The way Gerry and I look at that is that is sort of this week's kind of debate. The real future is over the next decade, over the next century, and how does this company really execute on this strategy to build the most valuable and most respected company on Earth.

And both of us basically concluded, if you are an AOL shareholder, it is better to own 55 percent of this new company than 100 percent of AOL. If you are a Time Warner shareholder, it is better to own 45 percent of this new company than 100 percent of Time Warner. I think that will be clear in the next few years as we execute this strategy.

And now, Ted.

TURNER: Not much left to answer to there. It was very well stated. I voted for it because I think we are going to have a stronger company and we will accelerate value creation. I also think that it is going to be exciting and challenging and a lot of fun.

And I also want to say that it's not so easy to go out and recreate an AOL. Nobody else has been able to do it. It wouldn't be easy to create a Microsoft. It is not even easy to create a Bloomberg.


CASE: All right, we have time for one more question. Right here in the middle. Wait for a microphone.

QUESTION: Music who...

LEVIN: Try the mike now.

QUESTION: Who most directly will be running music in all its permutations, and give me your sense of how a consumer is going to get music from AOL-Time Warner in, say, seven years.

LEVIN: OK, let's start with the way things operate today. Obviously, we have a very large music company with a person named Roger Aims (ph), who runs it, and it reports to Dick Parsons, who reports to me.

One of the most exciting things about this transaction, in our conversations, that is the conversations that Steve and I and Dick and Bob have had relate to the music business precisely for the following reasons: A, the Internet and the -- now the AOL opportunity provides the following kinds of expansions for the business: first is promotion. The music business is built on exhibition, usually in the past through radio or MTV, now you have through AOL and through the Internet, you have this worldwide opportunity to promote.

Secondly, the music business is built on signing new acts. And normally that has involved going into clubs around the country and discovering them. This wonderful network society enables a lot of young people, you have like a vast A&R field from which to choose.

Third, it's no accident that music has lent itself to the electronic commerce to the packaged good because it's been pretty easy to see what it is and to get it to you. But it also, this medium, lends itself to the digital downloading, and therefore the more efficient delivery of music. And then coming off with a consumer electronics show, all these devices, any time, anywhere, all will have the capability of putting a little chip in them so that you can listen to music. At the same time, we have DVD and DVD Audio.

So, in effect, what this means is that the music business, which I personally believe is the most fundamental business, it's the most emotionally evocative business, and it fortunately digitally translates extremely efficiently. And in fact, the AOL overlay on this, because Steve and Bob have already been doing this with Spiner and with Quinamp (ph), they are already on to it. And so one of the early things that we have seen, and you can see it in the press release, is the fact that this now catapults the Warner Music Group into a unique position. And the transition team, which will be Bob and Dick Parsons and Ken and Rich Pressler (ph), are working already on a structure that will maximize that. And we are going to put aside all the old forms of organization and make this work. That's why I have used in my own company the notion of a digital override or a digital transformation.

CASE: Well, thank you all for coming. This is an exciting day for us, kicking off this new company in this new Internet century. Thank you.

TERRY KEENAN, CNN ANCHOR: OK, you've been listening Steve Case and Gerald Levin announce the largest takeover ever in U.S. history and global history. AOL-Time Warner combining in a deal valued at $350 billion.

BILL TUCKER, CNN ANCHOR: A lot made about the secrecy of the deal, and a lot made about the similarities between the two companies, both Steve Case and Gerry Levin stressing the fact that we're both fundamentally are in the same business. Time Warner, of course, the parent of this network.

Talking about customer relationships, building subscriber bases, and stressing the fact that this is a very, very strong management team, a management team, Terry, which they seem quite confident can move and effectively manage together despite the strong personalities.

KEENAN: That's right, no fewer than six executives up on the podium making comments about this combination, a company that they're calling -- a company for the "Internet century." Bob Pittman, who will be new co-chief operating officer saying that this company that we are the missing pieces in each other's puzzle.

And Wall Street apparently agreeing, both stocks are higher, Time Warner's stock sharply higher, it up by about $29 a share as we speak.

TUCKER: Yes, and it is interesting because, even as this press conference began today, AOL's stock was trading down. And it did make a turnaround, AOL's stock trading up currently up about a dollar.

KEENAN: And Time Warner's shareholders will get a 1 1/2 share each of AOL's stock for each share that they own, and that would value the deal, if were to close today, at $109 per Time Warner share.


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