Peter Morgan/Reuters AOL CEO Steve Case and Time Warner CEO Gerald Levin react to remarks made by Time Warner Vice Chairman Ted Turner at a press conference

By combining forces, the two conglomerates will create a multimedia empire that spans magazines, movies, cyberspace and the cable industry.

America Online Chairman and Chief Executive Steve Case will serve as chairman of the merged companies, while Time Warner Chairman and Chief Executive Gerald Levin will be chief executive, the companies said in a statement.

At a Monday morning press conference, the leaders of the new AOL Time Warner Inc. said the all-stock deal will create many new choices for consumers.

"The merger will launch the next Internet revolution," Case said, adding that the new company will offer an "incomparable portfolio," including the Internet, broadcasting, cable, film, music, magazines and books.

Case said the new team will be exploring various ways to combine their assets and to enhance services to customers.

AOL President and Chief Operating Officer Bob Pittman, who will serve as co-chief operating officers of AOL Time Warner, said: "We are the missing piece in each other's puzzle."

Pittman said the deal allows both companies to significantly grow their businesses. They also would benefit by being able to offer advertisers lucrative package deals that span across the different properties.

"This deal blows the roof off of advertising," Pittman said.

AMERICA ONLINE INC. Headquarters: Dulles, Va. Chairman and CEO: Steve Case Employees: 12,100 Revenue: $4.8 billion in the fiscal year ended June 30, 1999 Net income: $762.0 million in the fiscal year ended June 30, 1999 Online brands: America Online, CompuServe, Netscape Source: AP

The merger comes at a time when many big media companies are struggling to figure out how to harness the power of the Internet, and when Internet companies are increasingly looking for ways to put entertainment and other content on their Web sites to attract more customers.

The combined company will create a media conglomerate with unprecedented reach across traditional and new media, allowing the delivery of programming from Time Warner's stable of brands on to the Web, and giving AOL access to Time Warner's U.S. cable television network to offer high-speed Internet access.

Slew of Assets Come Together

AOL Time Warner will bring together Time Warner's Time magazine, CNN, Warner Bros., People magazine, HBO, Sports Illustrated, Cartoon Network, Warner Music Group, Fortune, Entertainment Weekly and Looney Tunes with America Online's AOL, CompuServe, Netscape, ICQ instant messaging, Digital City and AOL Moviefone.

"We're kicking off the new century with a unique new company that has unparalleled assets and the ability to have a profoundly positive impact on society," Case said in the statement announcing the deal.

"By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained — providing far-reaching benefits to our customers and shareholders," he said.

Under terms of the definitive deal, which has been approved unanimously by both boards of directors, Time Warner and America Online stock will be converted to AOL Time Warner stock at fixed exchange ratios.

TIME WARNER INC. Headquarters: New York Chairman and CEO: Gerald M. Levin Employees: 70,000 Revenue: $26.8 billion in 1998 Net income: $168 million in 1998 Cable TV brands: HBO, CNN, TNT, Cartoon Network Magazines: Time, People, Sports Illustated, Fortune Entertainment brands: Warner Bros., Warner Music, the WB network, Looney Tunes Source: AP

Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own while AOL shareholders will receive one share of AOL Time Warner stock for each share of AOL they own.

AOL shareholders will hold 55 percent of the merged company, while Time Warner shareholders will hold 45 percent, even though AOL's market capitalization prior to the deal was nearly twice that of Time Warner.

Market Reaction

The merger led blue-chip stocks on Wall Street to a record high Monday and the Nasdaq composite index scored its largest point gain, as the merger fueled a run-up in technology and media shares.

"Obviously the AOL-Time Warner deal was the spark for the rally," said Charles Payne, head analyst at Wall Street Strategies. "Investors are just not ready for the stocks party to end. The AOL-Time Warner news just took the party to another level."

The Dow Jones industrial average climbed 49.64 points, or 0.43 percent, to 11,572.20, romping past Friday's record close.

The Nasdaq Composite index climbed a record 167.05 points, or 4.30 percent, to 4,049.67, putting the technology-loaded index just 2 percent below its record finish of 4,131.15 set on Jan. 3.

The advance, the Nasdaq's ninth biggest in percentage terms, got a boost from Internet companies such Yahoo! Inc., which zoomed ahead 28-13/16 to 436-1/16.

AOL, which was volatile all day, ended up slipping 1-7/8 to 71 on investor concern about the fast-growing Internet company's plans to tie the knot with slower-growing Time Warner, which went on a tear as its stock shot up 39 percent or 25-5/16 to 90-1/16.

Time Warner has about 1.5 billion fully diluted shares outstanding; AOL has some 2.58 billion shares outstanding.

Merger mania gripped key Asian markets on Tuesday as Tokyo's benchmark Nikkei average closed up 657.51 points, or 3.61 percent, to 18,850.92. Gains were lead by high-tech stocks, which took a beating last week following sharp losses on America's high-tech Nasdaq.

"The opinion both in New York and Tokyo is that high-tech shares have seen enough correction and are ready to head higher," said Hirokuni Matsumoto, a trader at Yamatane Securities.

Australian stocks closed at a record high pushed almost single-handedly by News Corp. and the merger momentum. The benchmark All Ordinaries ended up almost two percent at 3164.6.

"It's absolutely led the market jump. Once we've seen the megamerger between these media and Internet companies the market believes that won't be the end of it," said Tony Russell, senior equity dealer at Morgan Stockbroking.

European markets also looked set to rise again after moving sharply higher on Monday as investors welcomed the marriage of new and old media and anticipated more media-technology megamergers and the beneficial spill-over effects.

Transaction Details, Integration

The transaction, which is subject to certain closing conditions, including regulatory approvals and approval by America Online and Time Warner shareholders, is expected to close by the end of 2000.

Ted Turner, Time Warner's vice chairman of Time Warner, has agreed to vote his Time Warner shares, representing about 9 percent of the company's outstanding common stock, in favor of the merger. He will be vice chairman of the merged company.

The AOL Time Warner board will consist of 16 members, with eight appointed by each of the current America Online and Time Warner boards. America Online's board now has 11 members.

Parsons and AOL President and Chief Operating Officer Bob Pittman will be co-chief operating officers of AOL Time Warner. J. Michael Kelly, senior vice president and chief financial officer of America Online, will become the new company's chief financial officer and executive vice president. The three executives will report to Levin.

A four-person integration committee, composed of Pittman and Parsons along with Kenneth Novack, AOL's vice chairman; and Richard Bressler, chairman and chief executive of Time Warner Digital Media, has been formed to smooth the transition of the combination of the two companies, the companies said.

Marty Lederhandler/AP America Online Chairman and Chief Executive Steve Case was named chairman of the merged companies.

'A Great Deal'

Dulles, Va.-based AOL currently has a market value of about $164 billion. There are some 20 million AOL members and the company offers services in 15 countries and 7 languages.

New York City-based Time Warner's market value is valued at $97 billion. Some 1 billion people have access to CNN, 2.2 million to CompuServe, 35 million to HBO and the company relies on 120 million magazine readers.

Revenues from the combined company would be $40 billion annually and generate $10 billion in free cash flow, based on the simple addition of the two companies income statements, Case said.

"It's a great deal," said Michael Wallace, an AOL analyst with brokerage UBS Warburg. "It puts AOL and Time Warner leaps and bounds ahead of anyone that's trying to compete with them," he said.

However, Wallace cautioned that AOL investors may have second thoughts about the deal as they consider the slower growth rate of Time Warner, an issue that cast a cloud over previous marriages between traditional and new media.

"People who own AOL are used to a very rapid growth rate," Wallace said. Still, he noted that given the price AOL is paying for Time Warner, America Online still believes it can boost earnings, excluding acquisition costs.

Merrill Lynch analysts Jessica Reif Cohen and Henry Blodget said that while initial reaction to the deal was positive, shareholders would have to reckon with the issue of valuation given the two companies and their differing rates of growth.

Will Titanic Merger Pass Anti-Trust Muster?

The transaction, which is subject to certain closing conditions, including regulatory approvals and approval by America Online and Time Warner shareholders, is expected to close by the end of 2000. The merger comes exactly 10 years to the day after Time Inc. merged with Warner Brothers in deal that created the world's largest media conglomerate.

Prior to Monday's announcement, the biggest merger on record was MCI WorldCom Inc.'s agreement to buy Sprint Corp. for $115 billion.

In an interview on Time Warner's CNN television, Vice President Al Gore said he would allow regulators to pass judgment on whether the merger raises antitrust issues, saying he did not want to "bias a potential review of something that might raise an antitrust objection."

— The Associated Press and Reuters contributed to this report