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Analysis of the AOL and Time Warner Merger - Dissertation Sample

06 Mar 2017Dissertation Samples

Abstract:

The AOL and Time Warner merger ties the knot to the infrastructure of the old economy with the content and candidness of the new-fangled economy. In the months from the time when the merger was declared we have seen our telecommunications industry altered. Global consolidation and entry of foreign competitors into U.S. markets is forcing American companies to develop and compete in a global market. Vivendi and Terra Networks are by now vigorously involved in American telecommunications and Deutsche Telecom and Nippon Telephone and Telegraph on their way; we require being certain that our authoritarian polices do not put American companies at a viable inconvenience in the global marketplace. 

As the telecommunications marketplace becomes more and more global, apprehensions over monopolistic power over the industry should weaken. About a year back the FCC (Federal Communications Commission) created the term no-opoly to illustrate the broadband marketplace, as the market was in such an untimely stage that monopolistic policies were not the appropriate structure for the industry. At present the astuteness of their hands-off approach is stand out in the broadband numbers.

Chapter 1 Introduction

There are more competitors in today’s broadband market than there were even one year ago, prices are declining across the board from DSL to satellite to cable, and wireless companies are looking to even out third generation services that will pass broadband to cell phones and PDAs. In this vibrant competitive marketplace, it is apparent that AOL and Time Warner embody only a small portion of the broadband market, and the longer they must wait for endorsement, the smaller that portion becomes. 

Several analysts have recommended that the AOL/Time Warner merger may bind speech by blocking definite points of view, or endorsing other points of view, but these concerns neglect or discount the very nature of AOL’s achievement. AOL is an Internet media company and its accomplishment depends on its members having access to the affluence of information accessible on the Internet. By bringing the new economy replica to the cable industry, AOL may in fact augment the amount of voices in the media. These new voices, forced by an unimpeded information economy, can innovate to present better choice and access to Americans as they struggle for consumer eyeballs and dollars. 

Still others articulate concern over AOL’s Instant Messenger program and its lack of interoperability with opposing messenger services. at the same time as AOL enjoys a bigger subscriber base than their competitors as a consequence of being the first to be familiar with the prospective of instant messaging technology, mutually Microsoft and Yahoo have competing programs with over 10 million subscribers. A marketplace where competitors manage almost half the market barely fits the model of a monopoly. 

It is not anti-competitive for AOL to generate a product that consumers decide to download and that in turn overlooks in the marketplace.

Methodology:

In searching up, tracing and representing the AOL Time Warner Merger, presentation of literature about the merger along with an analysis exposes the level of success at hand. Generally through literature presented, entrants are more than a salutation to generate challenging standard. They present innovations in addition to what AOL presents in turn to tempt customers away, or use their vast resources to cut a legitimate business deal with AOL for access. However, it is also revealed that if AOL is subjected to strained access, inducements for new business advances and competitor networks will stop and the network will soon be similar to an indolent public value. Regulators should perform moderation and permit the online messenger market to develop free from government deformations. Analyzing these details through further literature presented enables one to determine the success and advantages of the merger. 

Through this review of literature, there is a great deal revealed about the merger of the AOL and Time Warner. The literature helps to present an unbiased and broad angle of the merger. This has helped to present the facts as reported in the sources and allow analysis to be conducted fairly. Analyzing the literature reveals to what types of risks and benefits were involved. 

Sources for the literature review are ones that are relative to the issue and are authentic, as they are taken from books, journals as well as official websites, newspapers and magazines.

Chapter 2

Literature Review:

Expectations of the Merger:

The primary aim of merging AOL and Time Warner was to provide service to the users. The service was to be of a kind that was not experienced before. Many had expected this of the merger too, which was the reason why it was looked forward to. Though there were several skeptical views of the merger, it was deemed as a potential success.

Users of services provided by AOL - Time Warner were to have:

• a wider range of broadband technologies to all consumers; 
• enhanced transformation of traditional media products to digital operations,
• direct access/stimulation of cable broadband market; 
• further development of advanced services.

Basic Issue with AOL Time Warner:

In January 2000, America Online and Time Warner declared the biggest merger in U.S. history an agreement that would generate the largest media company in the world. It was fêted as the matrimony of new media and old media, a powerful combination of the nation's leading Internet Company and the country's leading Amusement Giant, the possessor of such internationally well-known brands as Warner Bros., HBO, CNN, and Time magazine.

Other than only three years later on, nearly all the top decision makers at the back of the merger had resigned, the company had lost tens of billions of dollars in market value, and the U.S. government had begun two inquiries into its business dealings. 

AOL's Steve Case knew it was only an issue of time before the Internet bubble of the late 1990s would explode, grounding his outstanding company. His explanation: Buy another company to keep his own in the air. In the meantime, Time Warner's Jerry Levin was charmed of new technology but aggravated by his lack of ability to push his distant media empire into the Internet age. AOL and Time Warner seemed like a wonderful match. 

But the government enforced the two companies to make special consideration, and during the year long dialogue, technology stocks toppled. AOL executives noble it over their Time Warner correspondents, who felt they were being attained by hasty, young intruders with inflated dollars. The AOL way was fast, wobbly, and aggressive, and Time Warner executives, schooled in more refined business practices, rebelled. In the middle of diametrically opposed cultures and conflicting management styles, AOL's business sluggish and then slowed down. Shoddier yet, AOL came under government inspection, and when the company conducted its own internal investigation, it admitted that it had inappropriately booked at least $190 million in revenue. The Time Warner revolt gathered momentum (Ayres, 2000, 718-720). 

Financing Synergies:

The present evaluation equations settle on the company’s financial constancy. Subsequent to a merger, the fortitude of the present appraisal is indispensable to estimate how helpful the merger will be to the shared companies.   In particular for the AOL Time Warner merger, CEO J. Michael Kelly of the merged company approximates, “Cash flood will grow an eye-popping 50% annually” . 
AOL Time Warner has three main options in sequence to increase the present appraisal of the company:

1. Increase total currency flows
2. Decline interest on debt and impartiality 
3. Realize cash flow reimbursement more quickly.

Sequentially for AOL Time Warner to amplify the total cash flow, it must make out its core competencies. Once they have been acknowledged, the segments of the merged company that do not match the core competencies can be sold off through a course of action called divestiture. Divestiture can be defined as the sale, liquidation, or spin off of a commercial division or subordinate. The cash be paid from the sale of the division unswervingly increases the cash flow of the company.

This, in sequence, increases the at hand evaluation of the merged company as indomitable by the mathematical equation. 

A corporation like AOL Time Warner also has the choice of declining interest on debt and equity to augment the on the whole present appraisal of the company. In view of the fact that interest on debt is less pricey to a company than equity, AOL Time Warner should endeavor to make use of the most cost effective policy. The interest on debt is less expensive for the reason that interest on a loan is tax deductible. Using the company interest rate equation subsequent to taxes, the company deducts the percentage of interest that is tax deductible to settle on the overall tax rate on debts.

The further method AOL Time Warner could put into practice, although not the most cost effective, is to lessen the interest rate on equity. The paid return on equity is dogged by the security market equation. This equation factors in the amount of risk undertaken by a company additionally to a variety of market conditions. Since investors characteristically look forward to some type of return on investments in the form of dividends, AOL Time Warner is obliged to deal out these funds.   The levies distributed to the shareholders are not tax deductible; as a result, the rate at which they share out dividends is the finishing rate.

AOL Time Warner can also understand the cash flow benefits earlier than they would have as separate companies. For paradigm, Time Warner had a project aforementioned to the merger where the profits were projected to be realized in ten years. For the reason that of the accessibility AOL has to an Internet audience, the merged AOL Time Warner will be capable to harvest the profits from that project earlier. The increase in cash from revenues will allow the cash stream for the merged company to be realized by AOL Time Warner sooner then estimated

Stock:

When a merger takes place it is not remarkable for the stock price of the business got hold of another company to decrease, and the stock of the company being got hold of to amplify. Luckily, these typical conditions did not take place between AOL and Time Warner. Time Warner’s stock was at $52 per share as of January 1, 2001. By January 11, 2001, the day of the merger, the stock price shot up to $71 per share. This was about a $20 per share increase in 11 days. AOL’s stock prices increased as well. The price went from $39 on January 1, 2001 to $47 per share on the day of the merger. This is a fairly accurate increase of eight dollars per share. The typical stock plunge did not take place, which demonstrates a positive point of view for AOL Time Warner’s future (The Associated Press, 2000, 689-690).

Merger of AOL and Time Warner has formed a commotion in the business world and is being well thought-out one of the biggest mergers of 20th century. The planned merger of AOL and Time Warner got us to consideration, not only on the subject of what it might mean to the information industry on the whole but also what implications it might have for higher education specifically.

Market Analysts:

Market analysts were in the beginning thrilled, then vigilant about the prospects of this merger. Upstart “market space” AOL was buying reputable, marketplace Time Warner. If you bring to mind from our initial problem we said, "each business and organization nowadays control in two worlds: a physical world of resources that we can see and feel and a virtual world of information. Jeffrey Rayport and John Sviokla from the Harvard Business School have coined the term “market space” to make out this new information world from the physical world of the marketplace "

Both parties to the merger appeared to be saying that there was a synergistic, even symbiotic, association between “market space” and marketplace. Forecasters, in contrast, were not so certain. Some recommended that Time Warner's lack of ability to set up a grip in cyberspace; the “market space” was their underlying principle for merger. Most analysts seemed to have the same opinion that the symbiotic factor was genuine on the whole, even if not for this meticulous merger (Agence France-Presse, 2000, 697-68).

The "marriage" would merge the “market space” presence of AOL with the marketplace wallop of Time Warner. It is not easy to disagree with either the strength of AOL as a cyberspace gateway or the surprising content and content-development possessions of Time Warner. Furthermore, if perpendicular integration is to be the catchphrase of cyberspace, then this would be a marriage made in heaven (Walsh, 2003).

Those who have been concerned about the formation of virtual universities should find comfort in the panorama of synergy originating from the combination of place and space. But while banishing that mischievous sprite, it should give pause when we deem how most of our "place" institutions have treated the "space" of distance learning. Most institutions still operate a separate and dissimilar entity for distance learning. It is not a piece of the place-based academic structure. The distance learning, or continuing education, division of most institutions does not have permanent teaching faculty but somewhat relies upon not-always-successful strategies to persuade standard academic faculty to take part. Those programs that do have permanent faculty participating in general, find that they are viewed as second rate citizens in the academic constitution of the institution. One would have to query whether such institutions have succeeded in marrying place and space or are yet interested in doing so (Walsh, 2003).

The merger of content and portal is another idea that would seem to grasp a number of lessons for higher education. Much like Time Warner, our place-based institutions have developed genuine skill in developing content to be delivered in the place-based world. American higher edification is in general the resentment of the world and rightly so. Like Time Warner, our institutions of higher edification have normally been ineffective in interpreting this place-based dexterity to the “market space”. Much of what passes for distance education basically moves the lecture into cyberspace carrying with it all the paucities of lecture-based learning.

Undoubtedly, companies such as Blackboard, eduprise.com, and WebCT think they can donate considerably to "cyberizing" the place-based portal provided by our long-established institutions of higher learning. As with AOL, these companies bring internet-based handiness to nuptials. Unluckily, most of their customers are still laboring under the Gutenberg Fallacy, trying to make the new look like the previous. Ongoing to try to maintain 20- or 15-1 student-faculty ratios in cyber classes is guaranteed to put loads of strain on the marriage (Hickey, 2002).

Analysts have also lifted the issues of culture and magnitude in regard to the AOL-Time Warner merger. Most advantageous corporate size is usually approved to be fairly strange for place and space-based organizations. “Market space” companies by and large rely upon a small amount of fundamental, if not unconventional, thinkers to smash from the existing paradigm and produce new and sometimes profane ideas. These ideas are usually brought to the “market space” by small teams of committed ideologues. We have commented prior to that triumphant net-based products seem to flourish in smaller organizations or in the "skunk-works" of larger because these seem to be environments that give confidence and reward paradigm-busting free enterprise. Size is in the same way a problem for organizations attempting to penetrate new lines of business (Hickey, 2002).

Size brings with it the traditions of bureaucracy. Cultural distinctions have ruined many a merger and will sink many more in the future. Very few organizations take pleasure in the thought that they need to cannibalize their existing product lines to help set up the products that future customers wish. Trying to do anything innovative frequently runs afoul of established procedures and the surfeit of checks and balances that have been put in place for the traditional business line. All the bureaucracy of the current institution has been established to deal with the current (some would say past) form of doing business. The culture of the old is as unable to get along with the new as is the physics of Einstein with that of Aristotle.

The principal lesson that higher education institutions can draw from the outbreak of consolidation taking place in the information industry is the requirement to have a revelation of the future and the role that they mean to play in that future. To do that requires them to be aware of both the value of reaching non-resident learners and how much of a role it will play in their future. Most institutions carry on operating as though the future is a simple extrapolation of the present, which almost certainly explains why they view their distance learning activities as out of the mainstream (Hickey, 2002).

For first-rate or terrible, victorious or not, the AOL Time Warner merger speaks volumes about the leadership of the two companies involved and their dedication to establishing new roles for themselves in a fundamentally transforming information economy. Those, more than any specific, have to be the lesson for higher education.

Chapter 3

Critical Review of Literature

At the time of the AOL-Time Warner merger, which came at the pinnacle of the dot-com bang, the new company set far above the ground growth goals based on the rollout of new products and services. There have been some cross-promotional achievements. AOL Time Warner said it is gaining about 100,000 new subscribers a month to Time magazine by advertising subscriptions on its AOL online service. But the company has struggled to meet up its targets for signing up customers to its speedy Internet service or meet other grand advertising and subscriber goals. 

"AOL Time Warner is being punished by Wall Street for having such elevated expectations," said Standard & Poor's forecaster Scott Kessler. 

Some synergy reviewers avow that corporate synergies never boost up stockholder value, that promised efficiencies are oversold and that lattice corporate cultures is easier said than done at best. From a firm analysis of achievement, shareholder value, media mergers have hardly ever worked out, some analysts state. "Even before the AOL deal, Time Warner stock was never as high as it was separately before Time and Warner merged" in 1989, said Mark Edmiston, managing director of AdMedia Partners, a New York investment banking firm. "In my personal opinion, synergy doesn't seem to work."

The synergy climate has so distorted over the past two years that AOL Time Warner is making an allowance for an IPO for its stake in Time Warner Cable, the nation's second-largest system, behind AT&T Corp.'s cable unit, with just about 13 million subscribers. This would elevate money for the parent company but, more emblematically, could unreservedly confess that parts of the up to date model may not be working (Financial Times Global 500, 28 May 2003).

America Online exploits an ordinary marketing infrastructure for its multiple brands of interactive services and Web possessions. To support its goals of attracting and retaining members or users, the $112 billion merger of AOL and Time Warner was, in 2000, which was the largest merger in US corporate history. AOL had grown quickly from its origins as a small on-line video game company, acquiring along the way Netscape, CompuServe and other web-related businesses. Time Warner was the product of the uncomfortable 1989 merger between Time Inc and Warner Communications, which brought together film production, TV, music and publishing benefit. Ted Turner’s media domain (including CNN) was obtained by Time Warner in 1996  .

Post-merger, the company’s presentation failed to counterpart the propaganda. CEO Jerry Levin (ex-Time Warner) was stressed into leaving in December 2001, and the company’s foremost Chairman Steve Case (ex-AOL) left also stressed in early 2003. ever since then, the company has tried to trim down its massive debt by selling some of its assets, including its book publishing division, sports teams and cable television channels. The present collection includes: AOL (including Netscape, CompuServe), Time Warner books, HBO (cable), CNN (cable news), Warner Bros (film studios and television), magazines (Time, Fortune, etc), Warner Music group, Warner Brothers theme parks, Turner Entertainment (including Cartoon Network) (Financial Times Global 500, 28 May 2003).

In the case of upstart AOL, its conquest of respected Time Warner was a item for consumption of the ridiculous overvaluation of internet stocks (and of some in fact dishonest accounting practices at AOL now being investigated by the US Securities and Exchange

Commission). Jean-Marie Messier’s alteration of a pedestrian French utility company into an impending global media empire was evenly impudent and – in perception after the fact – equally defective. In the ‘logic’ of the merged companies was of the synergies which could be realized. In other terms, in an increasingly information-based society, there were reimbursements to be realized not just from economies of scale but from releasing additional value by using the same information ‘content’ across dissimilar delivery platforms.

Competition policy has by now been used to get involved in some high sketch takeover and mergers: the AOL/Time Warner merger, for example, was obliged to please the competition regulators in both the US (the Federal Trade Commission) and the European Commission before it could proceed, and without a doubt the European Commission persist that the merger should be restrictive on the shedding of the earlier link between AOL and Bertelsmann (Financial Times Global 500, 28 May 2003).

Privacy Policy:

Commercial authority issues have also faced at AOL Time Warner, predominantly in the light of allegations of practices at AOL which helped ‘slope’ the share price. And certainly the scandals at WorldCom, Enron, Global Crossing and a string of other corporate have tardily focused the concentration of financial regulators on this subject.

The AOL Time Warner Memorandum of Understanding symbolizes a very positive step towards open access. AOL Time Warner has made a optimistic obligation on many, AOL Time Warner acknowledges, the Memorandum of Understanding is only the primary step toward open access.

AOL and Time Warner did draw attention to both the increased risks for privacy problems as the Internet evolves, and the great prospective for self-regulatory hard works to improve privacy protection. Both AOL and Time Warner have access to momentous amounts of personal data about their subscribers. For AOL, this includes for instance, information about online service subscribers, AOL.COM gateway users, and ICQ and instant messaging users. Time Warner has access to information about ranging from cable subscriber custom to magazine subscriptions. The specter of the merged companies pounding all of their information resources, and then mining those resources for marketing and other purposes, should be reason for concern. 

Basically, on the other hand, the AOL Time Warner merger does not change the equation for a privacy elucidation. Protecting privacy on the Internet requires a multi-pronged move toward that involves self-regulation, technology, and legislation (Financial Times Global 500, 28 May 2003). 

On self-regulation, we must carry on to press the Internet industry to agree to privacy policies and practices, such as notice, approval mechanisms, and auditing and self-enforcement infrastructures. We have to become conscious that the Internet is global and decentralized, and therefore relying on legislation and governmental mistake only merely will not guarantee privacy. Because of widespread public apprehension about privacy on the Internet, the Internet is acting as a driver for self-regulation, both online and offline. Businesses are amending and adopting company-wide practices when writing a privacy policy for the Internet. Hard works that carry on this greater internal focus on privacy must be encouraged . 

On the technology obverse, while the Internet presents new coercion to privacy, the move to the Internet also presents new opportunities for enhancing privacy. Just as the Internet has given individuals better facility to speak and publish, it also has the prospective to give individuals greater power over their personal information. We must carry on to endorse the development of privacy-enhancing and authorizing technology, such as the World Wide Web Consortium's Platform for Privacy Preferences ("P3P"), which will allow individuals to more effortlessly read privacy policies of companies on the Web, and could help to make easy choice and approval negotiations between individuals and Web operators (Financial Times Global 500, 28 May 2003). 

The positions of AOL and Time Warner are and will be significant to achieving augmented privacy protection. Both American Online and Time Warner have strong privacy policies, have usually been quick to react if lapses or violations are recognized, and have been strong supporters of P3P and other privacy-enhancing expertise.

Goal of AOL Time Warner:

They have an out of the ordinary AOL Time-Warner Foundation, whose goals are to "[Use] the power of media, communications and information technology to serve the public interest and strengthen society." This magnificent, humane foundation saves the lives of many children each and every year, by equipping children for the 21st century, extending internet benefits to all (a classic AOL goal), engaging communities in the Arts and empowering citizens and civic participation.

In appraising the merger, it will be grave to make sure that the merged company will carry on a strong commitment to privacy. Just as in the broadband area AOL Time Warner committed to requiring arms length negotiations amid dissimilar business units in the merged company, the business units of the merged company should carry on to uphold their subscriber information unconnectedly and in conformance with obviously stated privacy practices.

Chapter 4

Assessment of the merger

Financial Reports of AOL Time Warner:

The Company inflated its online advertising revenues by employing in “round-trip” dealings with a swarm of companies with which it had commercial associations. These transactions ranged in intricacy and sophistication, but in substance, the Company offered its customers with finances to purchase online advertising from AOL. At the same time, the customer would enter into an agreement to “purchase” online advertising from AOL in a sum corresponding to the payment from the Company. AOL and AOLTW inappropriately recognized as online advertising revenue the amounts received pursuant to these supposed advertising agreements and improperly accounted for the funds it provided to the clientele. 

Commencement in mid-2000, while the AOL/Time Warner merger was pending, stock prices of Internet-related businesses turned down suddenly as, among other things, sales of online advertising turned down and the rate of growth of new online payments started to even out.

During this period, AOL employed round-trip transactions that increased its online advertising revenue and masked the fact that it also was beginning to experience a business hold up. 

Merged colossal, AOL Time Warner, reported a document net loss of $1.09 billion for the fourth quarter, but looks forward to full-year 2001 revenue growth of up to 15 percent.

Profits for the quarter reached $10.2 billion, up 8 percent over the year 2000, Q4 numbers of $9.5 billion. Net revenue for the quarter was $365 million, or 15 cents a share, beating standard analyst prospects by 1 cent a share. The AOL Time Warner merger won FCC endorsement on Jan. 11 of this year, but the company is reporting its financial results on a document basis as if the deal had occurred on Jan. 1 of last year (Agence France-Presse, 2000, 697-68).

The company is looking to attain disdainful financial goals following year, estimating it will reach $11 billion in EBITDA and $40 billion in revenue for full-year 2001.

In association with these round-trip transactions, AOL time and again delivered untargeted, less enviable, leftover advertising. Frequently, the round-trip advertisers had little or no capability to have power over the quantity, quality, and sometimes even the content of the online advertising they received. Because the round-trip customers efficiently were paying for the online advertising with AOL’s funds, they hardly ever, if ever, complained (Agence France-Presse, 2000, 697-68).

AOL Time Warner decided each quarter how much online advertising to run under the March ’01 Deal by determining the sum of online advertisement revenues it needed during the time to reach its objectives. Time and again, the advertising for BAG ran late in the reporting period, after AOL Time Warner had determined the amounts by which it could not otherwise achieve its revenue goals . 

AOL Time Warner unnoticed the substance of the transaction and inappropriately recognized online advertising revenue on the December ’01 Deal in the subsequent amounts in 2002: $80.3 million in the first quarter, $84.4 million in the second quarter, $51.6 million in the third quarter, and $58.0 million in the fourth quarter. The Company did not repeat its financial results to overturn the revenue recognized in connection with this transaction in the 2002 Restatement.

AOL Times Warner went into a “stock swap” with one of its cooperative venture partners in the first quarter of 2001. In the stock swap, among other things, AOL Times Warner paid for the partner’s 55% interest in their joint venture. Parallel to other round-trip transactions in which AOL Time Warner funded its revenue, AOL Time Warner and the partner settled on a purchase price of $700 million, with the understanding that the acquisition price would be increased by $25 million in swap over for the partner’s commitment to purchase $25 million of online advertising from AOL Time Warner. AOL Time Warner unnaturally inflated its online advertising revenue in each quarter of 2001 and the first quarter of 2002 by inappropriately recording $25 million in online advertising revenue . The Company did not reaffirm its financial results to turn around the $25 million recognized as revenue for this business deal in the 2002 Restatement.

In total, the Company inappropriately inflated its online advertising revenue based on the Homestore-related transactions by at least $1.5 million in the fourth quarter of 2000 and $7 million in the first quarter of 2001. In its 2002 Restatement, AOL Time Warner restated its financial results to turn around these amounts. For its part, Homestore significantly overstated its reported financial results for the third quarter of 2000 and the first through third quarters of 2001 based on unacceptably recognizing the following amounts of revenue on AOL related transactions: $1.5 million in the third quarter of 2000, $15 million in the first quarter of 2001, $18.5 million in the second quarter of 2001, and $3.3 million in the third quarter of 2001. Homestore has reiterated its financial results to overturn the amounts for 2001(The Associated Press, ‘AOL-Time Warner Merger Unites Distinct Personalities’ in The New York Times on the Web. January 10, 2000. 689-690).

In evaluation of the AOL-Time Warner merger; The Washington Post, points out that the biggest merger in corporate history is starting to look like the biggest blunder. Jointly the two companies were worth more than $300 billion when the merger was announced. Today, AOL Time Warner's market value is $105 billion, and it could go down further after the company announces its first-quarter earnings later this month. The story examines in close feature what has gone incorrect and whether the media giant will ever accomplish its highly hyped potential (Hu, 2001).

Weighed down by AOL's troubles and failed to spot financial goals, AOL Time Warner has seen its stock lose more than two-thirds of its value from the time when its post-merger hit the highest point. The company is forecasting its online-advertising revenue to go down 35% to 45% from the $1.3 billion reported in 2003, more often than not because of the termination of boom-era contracts .

Critical Analysis of the AOL Time Warner Merger:

Since AOL and Time Warner completed its merger in January 2001, the worth of its stock has declined by more than 75%. When news of the SEC investigation broke last week, the price dropped to $9.51, at some point turn down of 15%, but has since climbed back above $11. At the height of the Internet bang, America Online used its soaring stock to get hold of Time Warner, an old-media company with four times its revenue. In recent times, on the other hand, some investors and analysts, among others, have targeted Steve Case, the company's chairman and architect of the $165 billion merger, for elimination. 

So what's in front for AOL Time Warner?

"Remerging would be a solution," says Gerald Faulhaber, Wharton professor of business and public policy, and an early reviewer of the AOL Time Warner merger. "They have to look at [themselves] and ask, 'Are we still a compelling business model for ad agencies to reach people?'" 

The merger, Faulhaber inserts, has been a "big distraction, not for Time Warner, but for AOL because they mislaid their focus." The only potentially positive feature in the deal was that AOL would get "access to broadband conduit ... and that was unsuccessful." in addition; the merger's dysfunction has been strengthened by bitter internal strife and a culture clash between AOL and Time Warner divisions and people . 

"AOL Time Warner is clearly not going to live on," says Wharton marketing professor Jehoshua Eliashberg. "It is really about dissimilar cultures clashing. Pittman had to resign. It was like trying to mix oil and water. The way AOL and Time Warner [each] think about business is different" (Yang et al, 2001).

Chapter 5

Conclusion and Future:

While AOL Time Warner once talked of supernatural synergies between the "new media" and "old media" and between "content" and "delivery," now many in the business press are candidly speculating on when the company will break up. 

Whatever the future grasps for company like AOL Time Warner -- which may make a decision to sell or spin off AOL in the future -- and Vivendi -- which is looking post-Messier to sell large units to lift up cash to pay down debt -- the mega-media companies are under intense pressure (Open Access To Broadband Networks, 2001).

"Eventually the marriage of content and delivery is a good one," he suggests. AOL and Time Warner had a practicable idea, just very bad timing. "They should break up as rapidly as possible. Maybe they should consider merging again in about 15 years, if AOL is still in the region of." Although AOL is enormous, "nobody looks at the company and says, 'Wow, that's tech done right.' They say, 'That's tech for idiots,' and our kids will desire a lot more." Two years ago, he added, "people viewed AOL as the go-go growth business, yet though it had already saturated most of its market potential. It was clear that AOL's growth would be leveling off" (Hickey, 2002)

According to Faulhaber, AOL mislaid its focus because it incorrectly was trying to "force feed" AOL and Time Warner content. "AOL is not about pushing content down the pipe; it's about peer-to-peer. It's group of people. The Internet is about peer-to-peer, not TV. The Internet is a lesser allocation channel for content, much substandard to cable and satellite." As for broadband, Faulhaber adds, "People talk about broadband and a 'killer app.' that’s utterly wrong. The idea it will be the corresponding to movies is wrong. It's not one-to-many. It's one-to-one" (Hickey, 2002).

Time Warner Settled Fraud blames with Justice Department:

Time Warner Inc. has agreed to pay $210 million to resolve securities fraud charges involving the company's America Online unit, the Justice Department announced. 

Under terms of the defrayal with the DOJ (Department of Justice), hearing on charges of aiding and abetting securities scam will be tardy for two years provided that the media colossal cooperates in a continuing investigation into whether AOL inappropriately helped smaller Internet companies falsely inflate their earnings.

The resolution, on the other hand, does not apply to a separate investigation by the Securities and Exchange Commission into alleged accounting misdeeds at AOL. Time Warner has agreed to a disconnect settlement of $300 million for those allegations. The SEC's five commissioners still require endorsing the deal (Financial Times Global 500, 2003).

The planned settlement with the SEC would determine an investigation by the securities supervisory body into whether AOL inappropriately accounted for a $400 million payment from the German media company Bertelsmann AG, which used to own 50 percent of AOL Europe, and whether that was used to inflate America Online profits. 

Thus, analyzing the abrupt balance sheet and cash flow statement analysis just subsequent to the merger and after assessing the ratio based current market analysis, it can be concluded that merged entity is performing rationally well in the market. But to continue to exist in the long run it should focus towards achieving the synergies for which this merger is intended to.


References:

  • Agence France-Presse. (2000). ‘AOL-Time Warner Merger Surprises European Markets’ in The New York Times on the Web.  January 10, 2000. pp. 697-68.
  • AOL Time Warner Foundation. (2001). Foundation Information
  • Ayres, Chris. (2000). ‘Mega-Deal that left seasoned market watches gasping’ in The Times Online, January 11, 2000. pp. 718-720.
  • Fact sheet: FCC’s conditioned approval of AOL-Time Warner merger 
  • Financial Times Global 500 (28 May 2003. Viacom (market value $66 bn) is in 36thplace; AOL Time Warner is in 55thplace. (But General Electric is in second position). 
  • FISOnline. (2001). Profile on AOL Time Warner downloaded 11/15/01
  • Hickey, Neil. (2002). Now it’s Time Inc.’s Time as AOL merger goes sour, Columbia Journalism Review.
  • Hu, Jim. (2001, August 21). “AOL Time Warner likely to cut 1,000 jobs this week.” CNET News.com downloaded 11/15/01
  • Open Access To Broadband Networks: A Case Study Of The AOL/Time Warner Merger. (Accessed on 4-23-2005). 
  • The Associated Press. (2000). ‘AOL-Time Warner Merger Unites Distinct Personalities’ in The New York Times on the Web.  January 10, 2000. pp. 689-690.
  • Walsh, Sharon. (2000) “Do you, Time Warner, take AOL to be your…”  Industry Standard.3 (44):  October 30, 2000.
  • Xpress Press (2001, October 15). “Threat of Anthrax Causes Rosie O’donnell to Cancel Shows and Author’s Appearance.” Xpress Press 
  • Yang, Catherine, Grover, Ronald, and Ann Therese Palmer. (2001). “Show Time for AOL Time Warner.”  Business Week.  January 15, 2001.

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