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AOL – Time Warner Merger

AOL – Time Warner Merger. Expectations January 2000 AOL- extensive internet franchises, technology, infrastructure TW – integrated communications, media and entertainment $1 B in cash in 2001. AOL Stock $92 ≥ $102 TW Stock $ $138 ≥ $154 Salomon - $114 per share, $500 B

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AOL – Time Warner Merger

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  1. AOL – Time Warner Merger • Expectations January 2000 • AOL- extensive internet franchises, technology, infrastructure • TW – integrated communications, media and entertainment • $1 B in cash in 2001. • AOL Stock $92 ≥ $102 • TW Stock $ $138 ≥ $154 • Salomon - $114 per share, $500 B • April 2000 - $47 & $71. Buy turned to sell

  2. AOL – Time Warner Merger • At $350B largest merger ever. • Process began informally in China in 1999. • Case planning the deal prior? Post China call. • Case had high priced stock to use in a deal. • Seeking targets through SSB – eBay and EA. • Internet was still evolving. • TW and Levin was pondering the digital age and had discussed merger with Yahoo’s Yang.

  3. AOL – Time Warner Merger • The “dance” and initial discussions in 1999 followed rather quickly visual synergy. • Case was the “buyer” but both companies in negotiating mode. • Agreement reached in VA – Dinner at Case’s • Merger of equals – Newco – 55% AOL; 45% TW • BOD equally balanced • Levin – CEO; Case – Chairman • Due diligence in NYC

  4. The Deal • January 2000 – all stock, no collar, breakup $5.4 B AOL ; $3.5 B TW. • Completed later in year – value down $214B • Curiosities – TW gives away 55% since AOL market cap double TW; AOL has 1/5 revenue and deal has fallen by $140 B. • January 2001, market cap $276B

  5. AOL – Time Warner Merger • Deal announced January 10, 2000. • AOL and TW Execs not happy. “dumbest idea” • TW – vision and values; AOL – opportunistic • Media portrayal – mixed • Transformative or foolhardy? “AOL – Crown Jewel” • Culture issues – tie (Case); no tie (Levin)?? • Regulatory approval – lengthy and economist concerned but deal approved by FTC.

  6. AOL – Time Warner Merger • Unraveling? • Internet & dial up service. Ad $ slowed. • Culture clashes – did they really hate each other? • Summer 2001 and 2002 – financial issues AOL • Overstated revenues – SEC investigation & Restated #s • Impact of 9/11? Levin retires December 2001 • Was deal doomed from the start, dot.com bubble, rapid development of the internet, culture clash, execution or combination of one or more? • Ted Turner – lost $8B, 80% of worth and job.

  7. The Final Step • December 10, 2009 – TW “spins off” AOL. • Both companies listed on NYSE. • One share of AOL for every eleven shares of TW owned as of November 27, 2009. • Tax free dividend except for “cash in lieu of” • “Returned to our roots as leading content company”. • “Focus on driving best possible performance” • See website: How the AOL-Time Warner Merger Went So Wrong

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