AOL, Time Warner Set High Contingencies
America Online Inc. and Time Warner Inc. apparently set a high bar to a breakup of their merger deal, according to documents filed with the Securities and Exchange Commission. If the merger proposal collapses and AOL accepts a deal with another company within 12 months, the document says, it would owe Time Warner a breakup fee of $5.4 billion, the largest such contingency ever. That’s based on 2.75% of America Online’s market capitalization as of Jan. 7, the last stock trading day before the merger was announced, plus the value of 376 million unexercised options held by insiders. If it’s Time Warner that accepts a counter-bid, it would owe AOL $3.9 billion. If the merger falls apart because AOL shareholders turn it down, the company would owe Time Warner $1.95 billion; if Time Warner shareholders pull out, it would owe $1.42 billion. Merger experts say the figures are large only because of the sheer size of the deal, which was valued as of the close of Tuesday’s trading at $143 billion. In terms of percentages of the stocks’ value, the provision is not out of line. Shares of Dulles, Va.-based AOL slid $2 to close at $61.25 and New York-based Time Warner eased 31 cents to close at $81.69, both on the NYSE.
