- guardian.co.uk, Wednesday January 12 2000 01.33 GMT
The European Commission confirmed yesterday that it would investigate AOL's (AOL) $159bn (£100bn) takeover of Time Warner (Time Warner) because of its "sheer size".
Shares in America Online and Time Warner fell sharply yesterday as investors fretted over the consequences of the marriage between the world's biggest internet service provider and media group. The deal, announced on Monday, also faces regulatory scrutiny amid concerns about the increased dominance of a handful of companies controlling access to the internet.
Shares of AOL fell 12 per cent at one point yesterday morning on concerns that its acquisition would slow revenues that have been increasing at internet speed. By midday, some $17bn had been wiped off the total value of both companies. Tom Wolzien, media analyst at Sanford Bernstein, said that the shakeout was typical after a merger announcement set to change a company's classification.
"After the dust settles, people will be looking at more fundamental techniques of valuation," he said.
He supported AOL Time Warner's own estimated value of $350bn for the combined group rather than the $245bn they were quoted as worth at midday yesterday.
Mr Wolzien believed some investors had failed to recognise the value of harnessing Time Warner's entertainment assets and cable network with AOL's internet capacity. "If people think the internet can go on forever without content there's got to be a recognition of reality," he said.
Investor preference for internet stocks over traditional companies has long been cited as a reason why so few large-scale mergers between the two sides have been carried out. The deal is set to be carefully scrutinised by regulators on both sides of the Atlantic.
Investigations by both the federal communications commission in the United States and the European Commission are expected to take up to nine months.
George Vardenburg, AOL's senior vice-president for global and strategic planning, said yesterday: "This [merger] is transforming the way people will get information, shop and are entertained."
