Senate to Kick Tires on AOL-Time Warner

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Washington -- America Online Inc.'s planned
acquisition of Time Warner Inc. will undergo its first round of congressional scrutiny
Feb. 29, when the Senate Judiciary Committee explores the competitive aspects of the
largest media merger ever.

Two days later, the Senate Communications Subcommittee will
undertake the same mission. Neither panel has released a witness list.

Soon after the merger was announced Jan. 10, Senate
Judiciary Committee chairman Orrin Hatch said he was concerned that an AOL-Time Warner
combination could lead to excessive concentration in the media and Internet markets.

"We need to ensure that we don't have an
environment like that in which we found ourselves at the beginning of the last century --
one that was dominated by oil barons and railroads and that ultimately resulted in
heavy-handed regulation," Hatch said in a prepared statement.

Two weeks ago, the Federal Trade Commission confirmed that
it would decide whether the deal complied with federal antitrust laws. On Feb. 11, AOL and
Time Warner filed with the Federal Communications Commission, seeking permission to
transfer various licenses and authorizations.

The FCC is also reviewing the AT&T Corp.-MediaOne Group
Inc. merger. Cable Services Bureau chief Deborah Lathen said recently that the agency
planned to assess "the cumulative impact of the two mergers."

Meanwhile, the AOL-Time Warner deal's corrosive effect
on both companies' stocks was stanched last Wednesday after a favorable report from
two influential Wall Street analysts.

Merrill Lynch & Co. analysts Henry Blodget (Internet)
and Jessica Reif Cohen (media) teamed up to endorse the planned AOL Time Warner Inc. They
called it "a strong combination, one that increases the value of both companies and
facilitates operating synergies, the transformation of existing businesses and the launch
of new businesses."

Since the initial buzz wore off, AOL and Time Warner shares
have suffered, partly because Wall Street researchers have had a tough time figuring out
how to value the combined company.

Blodget and Reif responded, "AOL seems undervalued by
almost any measure." But they acknowledged that no valuation methodology for this
kind of hybrid really exists yet.

Blodget and Cohen set a $90-per-share 12- to 18-month price
target for AOL, and they said they believe Time Warner's share price could reach $135
in the same period.

AOL, which closed last Tuesday at $49.50, spiked to $58.03
Wednesday. Time Warner's share price got as high as $82 Wednesday, up from $73.56 at
Tuesday's close.

"If any mega-merger of this size can work, this one
can," the analysts said.

The day after the Merrill Lynch report was released, Credit
Suisse First Boston analysts Laura Martin and Lise Buyer came out with their own take on
the merger, upgrading their ratings on Time Warner to "buy" from
"hold" and on AOL from "buy" to "strong buy."

That report also sent the stocks of both companies up, with
Time Warner reaching as high as $87.44 each before closing at $86.38. AOL shares rose to
$62 each before falling back to close at $59, an increase of 69 cents per share.

Buyer set her 12-month price target for AOL at $83 per
share, and she valued the combined company at between $88 and $97 per share.

"Investors who waited for tangible evidence of
AOL's 'resell the customer base' strategy missed the first 2,000 percent of
AOL's post-1997 run-up," Buyer wrote. "We strongly recommend learning from
history."

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