AOL Time Warner: A Merger Gone Wrong
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Case Code : BSTR047
Case Length : 19 Pages
Period : 2000 - 2003
Organization : AOL Time Warner
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Media, Internet and Entertainment
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Creating a Media Behemoth - The Merger
In January 2000, AOL announced that it would be acquiring Time Warner through a complete stock deal to create the largest media company in the world. Not only was the merger the biggest ever in the media industry, it was also one of the biggest in the history of the corporate world. As per the merger agreement, AOL and TW stock was converted to AOL TW stock.
AOL shareholders received one share of AOL TW for each AOL share owned and TW shareholders received 1.5 shares of AOL TW for each TW share they owned. While AOL shareholders owned 55% of the new company, the remaining was held by TW. The merger was soon being talked of as the beginning of a new trend: the coming together of traditional and new media companies. According to a report, AOL was 'a turbo-charged engine' that would bring old media giant, TW, into the Internet century. The merger was expected to result in a 30% increase in profits, amounting to over US $ 40 billion in revenues in the first year itself. The new company had 100 million paid subscribers, which included the customers of AOL's dial-up service and subscribers of TW's cable and magazine divisions...
What Went Wrong
Analysts had expressed their doubts about the successful cultural integration of the two companies, mainly because AOL had failed to integrate employees after acquiring Netscape in the mid-1990s. Within a few months after the AOL TW
merger top-executives began to leave the company.
Richard Bessler (Bessler), Head of Investments, AOL TW was the first top-executive to leave the company (he had reportedly taken an active part in the negotiations for the merger). Bessler resigned in March 2001; the reasons for his resignation were not stated. The cultural difference between AOL and TW was regarded as the major reason for Bessler's departure. Though both TW and AOL were assumed to have the skills necessary for assimilating and nurturing employees from different companies (since they both had a history of acquisitions), the reality was rather different. As AOL's Kenneth Novack replaced Bessler on an interim basis, analysts felt that Bessler's resignation was a 'symbol of a powershift' from TW to AOL. The next casualty of the merger was Turner...
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