"The new compensation plan will tie the fortune of every employee to that of the entire company and should encourage a company-wide focus on shareholder value."

MERRILL'S BULLISH ON
AOLTW—UPDATE

Positive Report Card Coincides With Expected Q4 Loss, SEC Filing To Sell Securities
The world's largest media company scored a major vote of confidence from Merrill Lynch this week as the company issued a strong "buy" recommendation for the house that Case and Levin built.

Deeming AOL Time Warner's planned layoffs of 2,500 employees part of "a carefully-orchestrated integration plan," Merrill Lynch noted that recent moves "will undoubtedly ruffle some feathers, but should also quickly demonstrate management's seriousness about delivering on its performance target."

Lynch praised AOL Time Warner's new plan of giving all employees stock options, with senior executives receiving a higher percentage of their compensation in options. "The new compensation plan will tie the fortune of every employee to that of the entire company and should encourage a company-wide focus on shareholder value," said the Wall St. gunslingers, adding that this strategy followed a new-media model.

"We regard the layoffs as a typical pruning of the weakest performers rather than major cost cutting," said a Lynch employee who identified himself as Gordon Gekko. "In fact, by year end, we believe the company will have hired almost all of its headcount back (although at less of a cash cost, as the new hires will receive the new cash/option mix)."

AOLTW expects to post a fourth-quarter loss due to consolidation, with revenue (artificially combined for evaluation) at approximately $10.4 billion versus cash flow of about $2.5 billion, Bloomberg reported today. Combined Q4 revenue in '99 for the two companies was $9.46 billion. Money guys say AOL's spike in membership offset sometimes underwhelming performances by Time Warner entertainment divisions.

The media behemoth also filed with Securites and Exchange Commission today to sell $5.4 billion in securities. Subject to SEC approval, the sale would allow the concern to raise up to $10 billion, Bloomberg noted.

The company's stock closed up 41 cents a share today, at $55.


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