Case Study

AOL Time Warner

Why Merge?

The merger gave Time Warner new platforms for its media properties like Time, People, Fortune, Warner Entertainment, HBO and CNN.

Time Warner gave AOL access to its cable systems, which allowed for “much speedier Internet and interactive television services.”

Failure Supporting

1) In January of 2000, Time Warner stock sold for $71.88. By 2008 you could buy a share of Time Warner for less than $15. (Slide 14)

2) In 2001, AOL completed its $164bn (£104bn) acquisition of Time Warner, but it soon led to monumental write-downs. However, Time Warner soon realised that the merger was not in its best interests, leading to a loss of $99bn in 2002

Failure Reason

1) Height of the “dot-com bubble”, causing huge losses for AOL Time Warner. At the time of the merger AOL’s stocks were overvalued mainly due to the Internet bubble. Given all this coincided with the bursting of the dotcom bubble – without which the all-share merger would never have been possible in the first place – it was perhaps no surprise that the men behind the disastrous merger jumped ship, and by January 2003, Dick Parsons, formerly co-chief operating officer, was left to single-handedly sort out the mess. What Parsons started – a slow unravelling of the merger which began with the removal of the AOL name from the merged business in 2003 – his successor Jeff Bewkes has accelerated in the 22 months he has been chief executive. AOL's subscriber growth slowed to almost nothing, its profits fell by a billion dollars, and millions of people started using broadband, where AOL scarcely has a toehold.

2) The AOL and Time Warner divisions remained at odds with each other and did a poor job integrating their products. Integration did not take place – apart from at a corporate level – and as the various business units continued to stand alone, so the expected financial benefits from merging the two companies did not emerge. Negative synergies even developed, as...