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Ma Bell to log on to AOL?
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June 17, 1998: 2:17 p.m. ET
Shares of online service provider shoot up amid AT&T buyout report
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NEW YORK (CNNfn) - America Online Inc. shares shot up more than five percent on Wednesday following a report the nation's top online service company turned down a buyout offer from phone giant AT&T Corp.
Shares of AOL [AOL] were up 5 at 94 Wednesday in New York Stock Exchange trading in midday trading. AT&T shares (T) gained 7/16 at 62-3/8.
Analysts, who gave tentative credence to a report in the Financial Times on Wednesday about talks of a deal, said AOL's run on Wall Street of late would require any bidder to pay a 20 to 30 percent premium above current share prices to win over its shareholders.
Michael Armstrong, AT&T's chief executive officer, has made no bones about his desire to become a major player in the growing Internet access business. The Times' report said he recently approached AOL brass about a possible deal.
"AOL knows how to play it cool," said Ulric Weil, a Friedman, Billings & Ramsey analyst. "It's not going to tip its hand until it knows an offer is real."
AOL's current market value is about $19 billion, making a buyout likely only from deep-pocketed bidders. But AT&T's strategy could be to whet AOL shareholders' appetites for a possible buyout, analysts suggested.
But, Weil said such a ploy could backfire by drawing rival bidders such as Walt Disney Co. or IBM Corp. to join in a bidding war to stem AT&T's effort to land such a prized catch.
Jonathan Cohen, an analyst with Merrill Lynch, said speculation about a deal isn't likely to tantalize AOL shareholders with the stock nearly doubling since the start of the year.
"I would be surprised if there were any pressure from shareholders, in the absence of a specific offer," he said. "If someone were to come forward with an offer north of $120 a share, that would be interesting."
AOL is by far the nation's largest online service provider, with more than 12 million subscribers. AT&T's WorldNet service has about 1.1 million members, said a spokesman.
AT&T and AOL both declined comment.
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