Merger Deal Off for CNN and ABC

AOL Time Warner Inc. pulled the plug Thursday on a proposed merger between its CNN news network and Walt Disney Co.’s ABC News, formally ending months of discussions about how to make such a complicated combination work.

A merger could have resulted in tens of millions of dollars in savings for both sides and a chance to combine two powerful brands into a dominant news-gathering organization. But it also presented major hurdles, including figuring out how control would be divided.

Some within both companies continue to hold out hope that a deal might be struck down the road. But the prospect of an agreement had become increasingly problematic, with both companies gearing up to cover a possible war with Iraq and critics attacking media consolidation in light of the Federal Communications Commission’s upcoming revision of ownership rules.

In the end, the deal appears to have been just too much for AOL Time Warner, in particular, to take on at a time of management turnover and problems at its core AOL online service.

The two sides, which started talking seriously in late summer, hadn’t held formal talks since late November, as AOL Time Warner grappled with other issues, including the resignations of Chairman Steve Case and Vice Chairman Ted Turner, CNN’s founder, who recently broke his public silence to say he was against the merger. Turner’s decision to relinquish his executive role at the company had been a hopeful sign for some CNN insiders who favored a deal.

Word that the merger was officially off emerged after a daylong meeting of AOL Time Warner’s top executives, who were gathered in New York to discuss corporate strategy.

In a short statement, the company said: “After careful review, it was determined that although there are great merits and possibilities to a merger of ABC and CNN news, for us, the potential problems associated with the completion of such a transaction and the integration of these two distinct and great cultures was more than we want to pursue at this time.”

Disney spokeswoman Zenia Mucha eulogized the failed concept -- an indication, some thought, that talks possibly could be revived later.

“ABC is a preeminent news organization,” Mucha said. “This would have been a venture that would have benefited both sides, but circumstances have prevented it from moving forward.”

CNN has talked about a merger with both Viacom Inc.’s CBS News and ABC News in the last two years, but the discussions with ABC turned serious in August. The ABC-CNN merger plan called for CNN to own 70% and ABC to own 30% of the venture.

Disney executives wanted to make the merger happen. In October, during an appearance on CNN’s “Lou Dobbs Moneyline,” Disney Chairman Michael Eisner embraced the concept.

“I think it makes great sense,” Eisner said, although he cautioned that negotiations were complicated and the two sides still were sorting through the sticky issues of operating control and financial splits.

Even after months of talks, executives from each side espoused separate theories of how it would be controlled and decisions made.

Getting employees on board was going to be a daunting task as well, as ABC and CNN have markedly different styles, driven by the different amounts of air time they have to fill. CNN is more focused on live events, and ABC’s forte is analysis.

Even the news that the two companies had considered joining forces sent employees into a state of anxiety as they worried, prematurely, about which jobs would be eliminated. Tensions were further fueled when it was learned that the companies were expecting to generate $200 million in cuts out of their combined news-gathering budgets.

News that the merger is off may not mean that employees can breathe easy, however, because many of the same financial pressures that were driving the merger still exist.

ABC News has been just nominally profitable. Though CNN still is turning out a healthy operating profit of about $200 million, it had flat results in 2002. And CNN’s main U.S. network last year slipped to second behind the aggressive Fox News Channel in the ratings.

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Times staff writers Sallie Hofmeister and Meg James contributed to this report.