Winning over Wall Street will require a prolonged process of-pick your noun-either education or spin. Music-business executive Danny Goldberg, a former head of Warner Bros. records, says the merger both "validates the Internet and validates the value of content." But it also forces the invention of a new currency to reflect it; as the AOL and twx stock prices yo-yoed up and down last week, it was clear that investors had no idea how to put a price tag on something that was neither an Internet highflyer nor an old-economy cash-flow locomotive. AOL lost about 20% of its value before recovering to $63. Time Warner leaped 58% on the news, then settled at $82, up 26% for the week. In the nobody-knows-anything world of Wall Street, one analyst was predicting a 50% increase in AOL's stock price between now and next fall when the deal is expected to close, another was predicting a continuing slump, a third meaninglessly narrowed the medium-term price target to "between $55 and $90," and the last little analyst cried all the way home. "The Street has no historical reference," says one of the dealmakers.ually meant.

For consumers, the combination represents, in its barest terms, the potential for getting whatever they want-books, movies, magazines, music-whenever they want it, whatever way they choose, whether on a TV, a PC, a cell phone or any of the myriad wireless devices that are hurtling toward the marketplace. They can even get it onÐdrum rollÐpaper. Is there a compelling reason that one company has to provide all of this? No. It will be up to AOL Time Warner to prove its case to consumers.."

That's the tantalizing potential of the AOL-Time Warner merger, the notion that two very different companies can combine to create something unimaginable only yesterday. Ten years ago, a Time Warner manager went to one of the company's senior executives with a proposition. This small but promising online business on whose board he sat, run by this terrific guy Steve Case, was in desperate need of cash. For $5 million, Time Warner could own 11% of it. "If we did that," the boss replied, meaning if he conceded that the digital distribution of content was going to succeed, "then everything we have done here since 1923 could be thrown out the window."

To see that, he may have been a wise man, though a horrible stock picker (that $5 million would be worth $15.6 billion at Friday's market close). But that was then, and this is tomorrow.

Questions

1. What motivated Steve Case and Jerry Levin to merge their respective companies?
2. Why does Wall Street have no historical reference for the AOL-Time Warner merger?

Next Article >