AOL TIME WARNER

MERGER
 Presentation outline
• Prologue
• AOL – premerger
• Time Warner – Premerger
• The Deal
• Revenue generating synergies
• Cost saving synergies
• Objective
• Net effect
• Two years later
• Result
• Reasons
• Behind the scene
• Comments and conclusion
 PROLOGUE

Strategic merger of equals

Individual stock price estimates
Estimate of the conglomerate
Market prices for Internet stocks
 THE DEAL
America Online buys Time Warner for
$103.5 billion USD.
Structured as an all stock, fixed share
deal without a dollar.
CEO’s at the helm were Steve Case –
chairman of AOL and Gerald Levin –
CEO and chairman of TW.
 REVENUE PRODUCING
SYNERGIES
• Leverage online/offline distribution and
sales infrastructure to increase
advertising revenues.
• Effective Cross-selling synergies.
• Obtain growth in subscription revenues.
• Offer new content and services to grow
its broadband cable subscriber base.
 COST SAVING SYNERGIES

• Reduce marketing costs by 10% to 15%

which will yield EBITDA of $230
million
• Shut down digital media unit
• Elimination of redundancies in
corporate overhead services.
OBJECTIVE BEHIND THE
DEAL
The “Strategic merger of equals” would
combine AOL’s extensive Internet franchises,
technology and infrastructure with Time
Warner’s vast array of world class media,
entertainment and new brands and its
technologically advanced broadband delivery
system. This will enable AOL Time Warner to
be the 21’st century’s first fully integrated
communications media and entertainment
company.
Which meant…….
 NET EFFECT
Deal announced on Jan 10 Deal closed on Jan 11,
2000 2001
MARKET VALUE OF AOL : $167 BILLION AOL :$107 BILLION
COMPANIES
TW : $124 BILLION TW : $98 BILLION

COMMON STOCK 1 AOL SHARE : 1 AOL

CONVERSION RATIO
COST OF WALKING AWAY
FROM DEAL
TIME WARNER SHARE
1 TW SHARE : 1.5 AOL
TIME WARNER SHARE.
AOL : $ 5.4 BILLION USD
TIME WARNER : $3.5
BILLION USD
 NET EFFECT
Deal announced on Jan 10 Deal closed on Jan 11, 2001
2000

100 80

80 60 AOL
AOL
60
40
40 Tim e Tim e
Warner 20 Warner
20
0 0
STOCK PRICES

45 AOL
43 AOL
55 TIME WARNER 57 TIME WARNER

PERCENTAGE SHARE-
HOLDER OWNERSHIP
 Two year later……
• AOL Time Warner is a shambles
• Stocks were trading at $10 .
• Advertising shriveled, no of subscribers declined.
• SEC and JD investigating the accounting
irregularities.
• $45.5 billion assets were written down for loss of
goodwill.
• $98.7 billion loss in 2002
 …..cont’d
• Aggressive accounting for advertising revenue.
• Steve Case,Jerry Levin, Ted Turner step down.
• Most of AOL’s top executives have been driven
out.
• $29 billion debt
• Speculation about AOL being sold
• By 2003, AOL names gets dropped.
Result of the Merger
 Reasons behind failure

• Failure of the Subscription synergy

• Faith in the synergy of Cross – selling
failed.
• Content business did not synergize with
AOL
• Aggressive accounting for advertising
revenues.
WHY THE MERGER AT ALL
 BEHIND THE SCENE
• AOL had only a fifth of the revenues of TW
• Rich Bressler and Ken Novack finalised the deal
• Figures were finalised in a week
• For long the idea was not communicated to
Time Warner.
• Sceptical accounting practices in AOL.
• Opposite Corporate Cultures
• Lack of Potential Synergy
THANK YOU