By Jeremy Schlosberg

    America Online and Time Warner are merging.
    The new company is to be called AOL Time Warner and will be the largest combination to date of an old media and new media company. 
     It will be the largest merger in history.
    AOL chairman and CEO Steve Case will be the chairman of AOL Time Warner; Time Warner chairman and CEO Gerald Levin will be the CEO. Ted Turner, who owns 9 percent of Time Warner, will retain his vice chairman title with AOL Time Warner.
    Fifty-five percent of the new company goes to AOL shareholders; the all-stock total deal is valued at $350 billion.
     The new company will have combined revenues of $40 billion, with pre-tax earnings of $10, executives told analysts this morning. 
   Combined subscriptions, they said, would give the new company a sub base of 100 million people around the world.
   AOL chief operating officer Bob Pittman was quoted as telling analysts that the merger will "blow the roof off our advertising and commerce potential." 
      Time Warner is the world's largest media and entertainment company. AOL, the largest internet service provider, with nearly 20 million subscribers, will pay $166 billion.
     AOL's stock is worth about $164 billion. Time Warner is valued at $83 billion.
   The acquisition easily exceeds in value the current record-holder, the pending acquisition of Sprint by MCI WorldCom for $122 billion.
    While Time Warner investors have welcomed the merger announcement with open wallets, pushing the stock up 25 percent by noon today, AOL investors seem to be less than enthusiastic. After popping up to 80 early Monday from 74 at the close of trading on Friday, the shares had settled back down to 73 by mid-day.
    And with good reason. While AOL last week had a market capitalization of $164 billion, almost exactly double Time Warner's $83 billion capitalization, the consolidated company will only be 55 percent-owned by AOL, and AOL shareholders will only get 1.5 shares of the new consolidated company's stock for each of their AOL shares.
         The lower value accorded AOL's shares in the actual stock deal show that when push comes to shove Wall Street doesn't really believe internet companies are worth those wildly inflated prices that they are trading at, which can be several hundred times their earnings (if there are any). On reflection, this deal could contribute to an eventual weakening of the torrid technology market.
     Though details of the deal, which was announced this morning, remain sketchy, the merger appears to offer  Time Warner exactly the sort of internet presence the company had long been seeking.
    AOL, on the other hand, gains access to a broadband universe that had previously eluded it, thanks to Time Warner's Roadrunner cable modem service. 
     Time Warner owns the second-largest cable system in the country, behind AT&T.
   Last year, Case came under increasing criticism from analysts because the company had not yet made a deal with a major cable company.
      The concern was that AOL would be frozen out of the market for broadband delivery at a time that cable systems across the country were upgrading systems to offer two-way, high-speed internet access and digital TV. 
      Case had been approached last year by AT&T to enter into a deal that would have granted AOL access to AT&T's cable network, but no deal was ever forthcoming, and reports surfaced that Case was unwilling to give in to AT&T demands.
      But by all appearances today's deal is a shocker, taking Wall Street by surprise.
    "Together," said Case in a letter to AOL subscribers, "AOL Time Warner will create a new company for the Internet Age--a global company on the cutting edge of content and technology, with an unprecedented ability to drive commerce and communication. And to build community."  
     One area in which the two are expected to have a huge advantage is in streaming video, which many regard as the next growth wave of the internet. As AOL brings its huge customer base, Time Warner offers its distribution system and huge library of content, as well as output from CNN and its other broadcast properties.
   Beyond the merger, AOL and Time Warner announced some new agreements that will take place immediately, including: InStyle magazine will be featured on AOL's subscriber service; CNN.com and Entertaindom.com programming will be featured on various America Online services; Time Warner promotional music clips will be offered to AOL members; Time Warner and AOL MovieFone will cross-promote Time Warner movies and related content; and Broadband CNN news content will be distributed on AOL Plus, a rich-media content service due to launch in the spring.