The "C" word reared its trite head in the wake of the biggest -- and perhaps most surprising -- corporate merger in history on Monday.
That's "C" for convergence, the buzzword of the year in the merger-happy days of 1999.
"No company will be able to better capitalize on the convergence of entertainment, communications, and commerce," gloated AOL CEO Steve Case, who will serve as chairman of the conglomerate-to-be, AOL Time Warner.
After surprising Wall Street at the start of the day, executives of America Online and Time Warner convened for a late-morning press conference where they talked about how the US$163 billion deal combines the biggest subscriber bases in the Internet and entertainment industries.
"This is the first time a major Internet company has combined with a major media company, and the possibilities are truly endless," Case said. "The true value of this union lies not in what it will do today, but what it will do in the future."
The immediate future undoubtedly holds many questions of a legal nature. For sheer size alone, the merger will draw the scrutiny of the Federal Communications Commission, which examines transactions involving cable television properties. FCC officials said they have not examined the deal enough to comment.
Time Warner chief Gerald Levin, who will serve as AOL Time Warner CEO, said he didn't expect regulatory clearance to be a major stumbling block since the two companies are involved in different industries.
The regulatory issues are less clear in this merger than they are in most previous mega-deals that involve companies in the same sector, such as the telco merger of MCI Worldcom with Sprint or cable company mergers such as AT&T and MediaOne.
"This is a clean break with the past and represents something new," Levin said.
Legal experts also agreed the merger should pass antitrust laws with the Department of Justice.
"It does not appear there are antitrust issues that would provide a significant impediment to this transaction," said Steven Salop, a professor of antitrust law at Georgetown University Law School.
Antitrust lawyer Marc Schildkraut, of Howrey & Simon in Washington, agreed that the merger would probably pass muster after a close examination.
"They will be looking at the same kinds of things they looked at when Time Warner acquired CNN," said Schildkraut.
AOL is the world's largest Internet service provider with more than 22 million subscribers. Time Warner has well over 120 million combined subscribers for its magazines and cable services.
There is also the issue of high-speed cable Internet access, currently the subject of considerable industry mudslinging. Time Warner owns the United States' second-largest cable television system, but AOL officials said the merger won't alter the company's position on regulations.
AOL has long argued that monopoly cable companies should let competing Internet service providers have access to cable networks. AOL has been lobbying state and federal regulators for months to force rival AT&T -- the largest cable operator in the country -- to let competing ISPs use its wires.
Local officials in Portland, Oregon, Broward County, Florida, and in San Francisco have been divided over how to regulate Internet access to monopoly-owned cable systems.
Case said he and other AOL Time Warner executives had briefed AT&T CEO C. Michael Armstrong with merger plans on Monday morning, but declined to divulge the thrust of that conversation.
Also during the hour-long media session, executives explained why a company like AOL -- which enjoys the stock market premium typical of Internet companies -- would want to risk lowering its market momentum by attaching itself to a slower-growing media company. Or, why Time Warner would want to take on the risk of combining with an Internet company, which is typically subject to much more volatile stock value swings than media players.
AOL (AOL), which earns less than Time Warner (TWX), has a much larger stock market value -- $163 billion -- than Time Warner at $120 billion.
"The market valuations in the Internet space I accept, because I think something profound is going on in this century," Levin said.
Time Warner's stock got a substantial boost Monday following announcement of the agreement. Shares leaped 45 percent in early afternoon trading, hovering around $93. That was a particularly nice payoff for Time Warner's vice chairman, Ted Turner, 61, who compared the excitement of signing the agreement to his first sexual encounter 42 years ago.
"I am very happy to be a part of it," said Turner, who will serve as vice chairman of the combined company.
Turner estimated his stake in the company at about 100 million shares -- which gave him a one-day stock market windfall of close to $3 billion.
Under terms of the agreement, AOL will buy Time Warner, the world's largest media company, for about $163 billion in stock. The deal is easily the largest transaction of its kind in US corporate history, dwarfing the former front-runner, MCI WorldCom's planned $129 billion purchase of Sprint announced in October.
Time Warner shareholders will get 1.5 shares in the combined company for each outstanding share. AOL will own 55 percent of the combined company.
Reuters contributed to this report.
