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Another boost for AOL deal
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January 4, 2001: 5:25 p.m. ET
Investors lift America Online, Time Warner shares for second straight day
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NEW YORK (CNNfn) - After falling steadily for much of the last three weeks, shares of America Online Inc. and Time Warner Inc. both rebounded strongly Thursday on renewed investor optimism about the firms' pending $98 billion union.
AOL (AOL: Research, Estimates) shares jumped $4.68, or 12.5 percent, to close at $42.18, it's highest daily finish since Dec. 18. Time Warner (TWX: Research, Estimates), the parent company of CNNfn.com, climbed $7.43 to $63.70. The gains came on the heels of a more than 17 percent gain Wednesday after the Federal Reserve surprised investors with a half-percentage point reduction in short-term interest rates.
But while Wednesday's increase could be attributed primarily to the market euphoria surrounding the Fed rate cut, analysts said Thursday's gains were at least partially related to investor belief that the merger might soon finally reach a conclusion.
The companies are currently waiting for the U.S. Federal Communications Commission to approve the deal -- the last regulatory hurdle standing in the way of the blockbuster merger.
"I think the stocks are moving higher on two fronts," said Michael Kupinski, a media analyst with A.G. Edwards. "One is obviously an anticipation of some sort of announcement from the FCC. Secondly, I think it's broadly in response to the Fed rate cut, as it relates to advertising and the improving economic picture in the second half of this year."
 Other analysts maintained investors simply viewed the stocks as too far undervalued.
"When you look at valuations, when (AOL) was trading below $30 [per share], it was below its growth rate," said Youssef Squali, an analyst with ING Barings. "Even for a normal company, this is an aberration and an established, bigger company should trade at a premium."
AOL and Time Warner were initially hoping to close on the merger by the end of 2000, but the companies struggled through an arduous approval process both in the United States and Europe, agreeing to several unprecedented concessions along the way.
The long delay combined with growing concerns about the economy and corporate revenues at one point helped shave the deal's enterprise value -- originally a record $164 billion -- by more than half to $77.5 billion. The gains of the last two days alone has added nearly $20 billion to the deal's overall value.
The FCC review is concentrated mostly on ensuring the joint company will not dominate the interactive television or instant messaging service markets following the deal's completion.
Analysts said despite the delays, the FCC approval should come any day now.
"We have met with a number of the FCC commissioners and they've indicated that this deal should go through, so I don't think there is going to be a holdup from the FCC," Kupinski said.
-- from staff and wire reports 
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