Mergers and Acquisitions

America Online and Time Warner

1. The Deal

This text concerns itself with the merger between America Online (AOL) and Time Warner. As indicated, this was a merger. As Berk, DeMarzo, and Harfod (2022) point out, there are various kinds of mergers. The merger between America Online and Time Warner was a conglomerate merger. According to Berk, DeMarzo, and Harfod (2022), this type of merger takes place when the acquirer and target operate in different industries. Whereas America Online was in the internet services industry, Time Warner operated in the broadcasting and cable industry. The Federal Communications Commission FCC (2018) points out that in this particular deal, both AOL and Time Warner would become wholly owned subsidiaries of a newly formed holding company, AOL Time Warner.

2. Structure of the Deal

The year 2000 merger between AOL and Time Warner happens to be one of the biggest and most significant mergers in history. According to Brigham and Daves (2021), the value of this particular deal was a record $350 billion. It is important to note that this was an all-stock deal. A stock swap, according to Berk, DeMarzo, and Harfod (2022), could be conceptualized as the arrangement whereby the payment for target shares happens to be stock (received by shareholders of the target). Thus, in essence, the currency of exchange in this particular merger was shares of stock. In the words of Brigham and Daves (2021), Time Warner shareholders and AOL shareholders exchanged their shares for stock in the new company (117). The merger between the two companies, as had been pointed out earlier in this text, resulted in the formation of AOL Time Warner.

3. Purpose and Goals of the Deal

This deal was largely rooted on the general consensus at the time that the models of mainstream media enterprises would likely be made obsolete by the Internet. Evidence of this general market consensus was the fact that at the time, despite its cash flows being less than half those of Time Warner, America Online traded at a price that was double that of Time Warner (Brigham and Daves, 2021). With America Online being a hugely successful portal to the internet and boasting of more than 30 million subscribers, the company was seen by many as an enterprise of the future. On the other hand Time Warner had interests in publishing, movies, as well as cable. Some of the Time Warners brands were the massively poplar Warner Bros., CNN, and Time magazine. Thus, at the time, the merger between the two companies was considered a masterstroke of sorts in as far as the establishment of a sustainable media model is concerned, i.e. as a consequence of the combined value of both companies capabilities.

Boone, Kurtz, and Berston (2019) best capture the overall aim of the merger with his assertion that those involved in the merger deal intended to bring together the unique capabilities of Time Warner (which were inclusive of, but not limited to; movie and television production, as well as magazine as well as book publishing) with the online service provision capabilities and huge subscriber base of AOL to create what could be considered an optimal media formation. However, as will be demonstrated in the subsequent sections of this text, the optimism surrounding this particular merger was short-lived.

4. Biggest Beneficiary of the Deal

It is important to note that in as far as the merger deal between America Online and Time Warner is concerned, there was no clear beneficiary. However, there was a clear loser from the onset. For instance, as Boone, Kurtz, and Berston (2019) indicate, it could be argued that Time Warners fortunes took a downturn less than two years after the merger following the 2001 internet bubble burst. More specifically, in the words of the authors, Jerry Levin, who had served as the CEO of Time Warner before the merger, was widely blamed by shareholders for allowing Time Warner and its stable...…integration agenda and highlight the key differences in as far as shared values and beliefs are concerned. Ideally, this would be followed by a clear definition of an ideal culture for the new entity and the formulation of a culture change plan.

There is also need to clearly evaluate the rationale and reason for merger and how it could be impacted by the various kinds of risks or external events. Indeed, Dudley (President Capital Assets Group) has been quoted saying, one of the key reasons mergers and acquisitions fail is a poor understanding of the target business and the consequences of the transaction (Boone, Kurtz, and Berston, 2019). In the case of the merger between America Online and Time Warner, the synergistic benefits of the merger were largely overstated.

Brigham and Daves (2021) point out that the relevance of teambuilding after the merger cannot be overstated. As has been pointed out elsewhere in this text, no teambuilding efforts were deployed in the merger between America Online and Time Warner, and teams from both companies appeared to work at cross purposes. To thaw relations and ensure a united team going forward, there would have been need to ensure that all employees of AOL Time Warner are familiarized with the overall goals and objectives of the enterprise. The various responsibilities and roles also ought to have been clearly defined and/or clarified.

In the final analysis, I would also advise the newly formed entity to focus on reining in its weaknesses and promoting its strengths. Further, there would be need for the entity to ensure it minimizes its exposure to the various threats that could affect its ability to achieve its business objectives, while at the same time positioning itself to exploit opportunities available in its external environment. A SWOT analysis (Table 1) would come in handy in an undertaking of this nature.

Strengths

1. Wider product/services portfolio

2. Positive brand image

Weaknesses

1. Poorly defined organizational vision and mission

2. Unclear strategic objectives

Opportunities

1. Deployment of more innovative products…