Thesis editing charts and reference guide

Mergers and acquisitions play an important role in the growth of corporations, and have given birth to some of largest corporations in the world today. There are a number of reasons why firms engage in M&a activity, but the underlying premise of each reason is because management of the firms believe that the transaction will enhance shareholder value. The popularity of mergers and acquisitions has been propelled by advances in technology, increased globalization of business, economic outcomes associated with political changes and industrial consolidation (Daniel & Metcalf, 2001). Mergers and acquisitions in the cable industry also became popular because of the changes that occurred when President Bill Clinton signed new telecommunications regulations into law in 1996 (Chan-Olmsted, 1998).

The cable television is a major industry in the United States and throughout the world. According to the Federal Communications Commission (FCC), cable television (CATV) was created in the 1940's specifically for communities that could not receive TV signals because of the distance from television stations or because of the terrain.

The AOL Time Warner merger occurred at a pivotal time for both companies. AOL was the leading force on the Internet and Warner Broadcasting was one of the leading cable television providers (Faulhaber, 2002). Both of the companies had a vested interest in utilizing the business strategies of the other (Baldwin, 1996). The merger was poorly structured and managed from the outset. Another major issue was the economic environment associated with the timing of the merger. The merger between AOL and Time Warner occurred concurrent to the bursting of the dot com bubble. In addition AOL failed to integrate high speed Internet services at the same rate as other Internet service providers. Although the combined entity increased revenues rapidly, costs increased ever more rapidly. By the time the merger was barely a year and a half old, all of the goodwill that had been created by the merger had evaporated, representing a major decline in shareholder value, contrary to the objectives of the merger in the first place.

Table of Contents

Abstract 1

Chapter I Introduction

Background 4

Problem Statement 5

Research Questions 7

Significance of Study 7

Chapter II Literature Review

Mergers and Acquisitions 8

Cable Television Mergers and Acquisitions 9

Results of Mergers and Acquisitions 11

Controversy 12

Chapter III Case Study

AOL Time Warner Merger 13

Background AOL/Time Warner Merger 13

The Merger of AOL and Time Warner 17

Impact of Merger on Broadband 18

Impact of the Merger on Consumers 21

Condition of AOL Time Warner 23

Financial Performance 24

Chapter IV Results and Findings 29

Chapter V Conclusion and Recommendations 31

References 33

Chapter I: Introduction

Background. Mergers and Acquisitions have long been an important aspect of the business environment. Many of the largest companies in the world exist as a result of mergers and/or acquisitions. Mergers and acquisitions are undertaken for a number of different reasons. For the purpose of this discussion, the case study will focus on mergers and acquisitions within the context of cable television, specifically the AOL/Time Warner merger, one of the largest in corporate history and already acknowledged less than two years later as catastrophic failure.

Cable television has long been a mainstay in American homes. In addition to providing subscribers with local channels, cable companies also provide customers access to cable stations based on a predetermined fee. In most markets these fees vary based on the number of channels the customers have. Although cable television has been extremely popular in the past, the advent of new technologies has led to more options for consumers. The most popular amongst these options is satellite television. Satellite television can be advantageous to consumers because there are more stations available to choose from and the price is the same or similar to that of cable television companies.

Most recently the Internet has changed the manner in which people access the news, communicate with one another, and watch television programs. As a result cable television companies have attempted to adopt new business models that often involve mergers and acquisitions. These mergers and acquisitions can take place between cable television companies to create a larger cable television company or between cable companies and telephone/Internet service providers. Some of the largest mergers have taken place between cable companies and high technology companies. There are a number of variables that can determine the success of a merger.

Cable television is a major industry in the United States and throughout the world. According to the Federal Communications Commission (FCC) Cable television (CATV) was created in the 1940's specifically from communities that could not receive TV signals because of the distance from television stations or because of the terrain. Cable television functions by finding antennas in areas with excellent reception and picking up broadcast station signals and then distributing these signals via coaxial cable to subscribers for a monthly payment. The FCC (2000) further explains that "in 1950, cable systems operated in only 70 communities in the United States. These systems served 14,000 homes. By October 1998 there were more than 10,700 systems serving more than 65 million subscribers in more than 32,000 communities. Cable systems are operating in every state of the United States and in many other countries, including Austria, Canada, Belgium, Germany, Great Britain, Italy, Japan, Mexico, Spain, Sweden and Switzerland."

There are approximately 30 to 60 channels that most cable stations can offer consumers. In recent years there has been a substantial increase in the number of television stations available. For instance, there are systems that offer more than 100 channels. The majority of subscribers to cable television have over 54 channels from which to choose. The channel capacity of a cable system encourages providers to offer customers many different services. Not only do cable companies offer over-the-air television broadcast signals, they also offer customers a variety of programming. This programming includes special entertainment features, business information, news, weather, movies, sports, and programming designed for certain groups such as women, children, and ethnic and racial groups (FCC, 2000).