“Frankly,” wrote a J.P. Morgan securities analyst just after the AOL Time Warner merger was announced, “it is difficult to project the true potential of this new entity, but we know it is big.” That statement might not get far in a logic class, but it rather nicely captures the widespread confusion about the payoff in this deal. The murkiness won’t be dispelled soon. Even at Internet speed, it will take some time for the world to judge whether AOL overpaid in offering 1.5 shares of its stock for each Time Warner share, or whether Time Warner sold its impressive assets too cheaply, or whether this is truly a marriage made in heaven.
In this article, later on, we will ourselves take a stab at figuring out what this company may do for investors. But first recognize that “big” indisputably is the word for the deal by one basic measure. Even after the merger announcement had knocked AOL down in price, a pro forma AOL Time Warner had a market value of around $290 billion. That’s not Microsoft, which leads the nation at about $585 billion. But it puts the new company about fifth on the market-value list, ahead of such heavyweights as IBM and Citigroup.
