The second week of the New Year has seen global stock markets shake off their initial jitters in a burst of exuberance.

A significant factor in generating this switchback to more positive sentiment has been the continuation of merger and acquisition activity. The Irish market has shared in this more bullish tone and the emergence of British Telecom (BT) as a white knight bidder for Esat Telecom undoubtedly gives the Irish market a shot in the arm.

For BT the deal marks a further step in its efforts to build up its mobile operations in Europe, where it has focused on purchasing the number two or three operator.

For example, it is currently in negotiations to buy control of Airtel SA, Spain's second-largest cellular company where it already has an 18 per cent stake. For BT, which is capitalised at well over €100 billion (£78.76 billion), Esat, ranks as one of its smaller acquisitions.

However, building up its presence in the Irish market seems a very logical step and the emergence of BT as a strong player will increase the competitive pressures on Eircom.

The Norwegian company, Telenor, which opened the bidding for Esat is unlikely to top BT's offer. However, an interesting twist is that Telenor and BT will share ownership of Esat Digifone where Telenor already has a 50 per cent stake.

While the Esat takeover is big by Irish standards, the merger that grabbed the headlines and the imagination across the globe this week was the announcement that America Online (AOL) and the media giant, Time Warner, had agreed merger terms. The proposed deal is being trumpeted as the largest ever and will create a new company, to be called AOL Time Warner, and will have a market capitalisation of $340 billion (€331 billion).

One of the more significant aspects of the deal is that AOL is financing the transaction with its own highly rated shares. As a consequence AOL has to pay a 70 per cent premium over Time Warner's last traded price.

The net result is that AOL shareholders will end up with 55 per cent of the merged entity, even though prior to the announcement AOL was valued at double the market capitalisation of Time Warner.

Nevertheless, AOL shareholders would still seem to be getting a good deal considering that Time Warner will generate 85 per cent of the revenues and 80 per cent of the cashflow of the merged entity. Brands such as CNN and Warner are extremely strong with a global reach.

In contrast, AOL is virtually unknown outside of the US and the bulk of its market value lies in the expectation that it will generate huge growth in revenues and profits in coming years.

Only time will tell whether the merger eventually proves profitable for both sets of shareholders. Some analysts with long memories have been pointing out that the merger of Time and Warner Bros which created Time Warner over a decade ago did not live up to expectations.

At the time executives of both companies were talking up the benefits of combining Time's publishing content and cable-TV prowess with Warner's films and music. In practice it proved to be very difficult to develop the hoped-for synergies.

Whatever about the merits and demerits of this particular merger, it is a major milestone to the extent that the shares of an Internet company have been used as the currency to purchase real assets and real cashflows. As such it marks a coming of age of the Internet sector.