AOL, Time Warner Get Boost From Blodget
Shares of America Online Inc. (AOL), which has a deal to buy Time Warner Inc. (TWX), rallied 18% on Wednesday after Merrill Lynch & Co.’s high-profile Internet analyst Henry Blodget said the stock is undervalued.
America Online’s foundering shares rose $8.69 to close at $58.31 in New York Stock Exchange trading. Through Tuesday, they had sunk about a third since the purchase agreement was announced Jan. 10 on investor concern that buying Time Warner would slow America Online’s revenue and profit growth.
AOL, the world’s largest Internet service, agreed to buy No. 1 media company Time Warner to gain content and fast Internet-cable lines.
“AOL seems undervalued by almost any measure,” wrote Blodget, who collaborated on the report with media analyst Jessica Reif Cohen. “The combined company is well-positioned to benefit from the ongoing impact of the Internet on the global media industries.”
The shares of Dulles, Va.-based AOL could reach $90 in the next 12 to 18 months, while Time Warner might reach $135 a share in the same period, the report said.
New York-based Time Warner shares bounced $7.94, or 11%, to $81.50 on the NYSE.
Blodget’s colleague said the market’s reaction to the deal might have been overly harsh.
“There has been a lot of confusion about execution, valuation issues--which way the companies will go,” Reif Cohen said in an interview.
AOL executives have been meeting with investors to reassure them about the merits of the acquisition, analysts and investors said.
“They’re flustered where the stock is today; the two companies are too committed for it not to work,” said ING Barings analyst Youssef Squali, who has a “buy” rating on America Online and expects the stock to rise to between $90 and $95 in the next 12 months. “The likelihood of [the merger] not going through is small.”
Blodget has made a name for himself with bold--and correct--calls on Internet stocks in recent years.
But will AOL’s Blodget bump last? Shareholders might be painfully aware that the stock has yet to rise two days in a row since the deal’s announcement.
