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Mergers And Aquisitions

AOL Time Warner: Merger of Unequals

On April 24, 2002 the big business news of the day was, “The world’s largest media company, AOL Time Warner, today announced the biggest quarterly loss ever for an U.S. company: $54 billion”. AOL Time Warner executives quickly blamed their troubles on a big decline in Internet advertising and said they expect things to improve by summer.

Many experts are questioning whether the logic behind this merger still makes sense. The AOL Time Warner deal was conceived at the height of the Internet boom. But now that the boom has turned sour, the merged company is required to show its shrunken market value as a loss.[1]

The combination of America Online (AOL) and Time Warner was the largest corporate merger in U.S. history. The transaction was valued at $183 billion on the day it was made public. It was supposed to be the perfect marriage of an “Old Media Titan” and a “New Media Darling”, with Time Warner’s stable of cable networks, cable service operators, magazines, television networks, movie studios, music and Netscape, being sold to AOL’s fast-growing base of internet users.[2] It was thought that this merger was to launch the Internet revolution.

AOL, the leading provider of dialup Internet service, needed a strategy for moving its customers forward into the much talked about world of high-speed “broadband” access, controlled by the telephone companies and cable TV operators (like Time Warner).[3] Time Warner, needed a credible way to salvage its Internet strategy after a decade of failure in the digital realm, from the colossal failure of its “Full Service Network” interactive television experiment to the spectacular nosedive of its misconceived “Pathfinder Web” portal.

There is no denying that the combined company will boast impressive market share and power. It is the first time that one of the new corporate giants created by the Internet boom has used the sky-high value of its stock to acquire an old Fortune...