A little more than a decade ago, America Online acquired Time Warner in a deal that was worth a whopping 350 billion dollars. At the time of the merger, everything was looking up as two giants were coming together in an unprecedented move that then, till now is the biggest merger in American history. The implications of this merger were far reaching in the business community. First the immense resources that the new company commanded means that they could bankroll many investments in key sectors of the economy. With the financial muscle in the company, they could perform more acquisitions of key companies in order to add to its portfolio. Additionally, the human resource base of the merged companies would enlarge, effectively improving the talent pool for the diverse activities in the merged companies. Together, came a very powerful news and publishing company and a popular internet service provider.
Nonetheless, the merger of the two companies was almost doomed from the beginning. Firstly, the market capitalization of American Online Was bigger that that of Time Warner. As a result, 55% of the newly formed company would be owned by American Online while shareholders of Time Warner owned 45% of the new company. Agreements that are made prior to a merger are very influential in determining the path the new company leads. Prior to the merger, the two companies were coming together in equal terms. Under the new ownership, it appeared that that America Online acquired Time Warner even thought its revenue base and assets were far much less compared to those of Time Warner. I reckon that this influenced the dismal performance of the merger.
The two companies would mutually benefit from one another. For instance, America Online would benefit from the high speed cable lines installed by Time Warner in order to deliver to its many subscribers. On the other hand, the Time Warner would benefit from the internet speed and capabilities of America Online to launch itself into the digital age. The merger between the two companies was complimentary to their operations because each of the companies had something the other needed to improve its turnover and profitability. For this reason, the merger between the two companies was good. Even with the budding prospects after the merger, the events that happened soon after changed the projected path of the company. Mergers are very difficult to manage, especially when the organizational culture of the two companies is different. In my opinion, this played a very significant role in the demise of the merger between the two companies.
I also opine that the ownership situation also added to this brewing problem as the key positions in the new company were taken up by executives from the two companies, although there was a skewed share. Additionally, the recession that hit the economy soon after the merger. As such, the growth, and by extension the profitability of American Online division of the new company stalled. This was because slumps in the subscriber and advertising that also resulted from the dot.com debacle. The market value of the American Online plummeted resulting in a 99 billion dollar loss one year after the merger. These unforeseen circumstances surely contributed to the depletion in value. Nonetheless, I think that problems inherent in the organizational culture of the new company resulted in the loss of value in the company. The beaming alliance that was valued at 350 billion dollars at the time of the acquisition has plummeted to 63 billion dollars at the moment. For all the good reasons that the two companies merged, the subsequent management functions have almost brought it to its feet.
Works cited
Ackman, Dan. Top Of The News: AOL Time Warner's Tragic Marriage. http://www.forbes.com/ 2001/01/12/0112topaol.html
Arango, Tim. In Retrospect: How the AOL-Time Warner Merger Went So Wrong. Available at >http://www.nytimes.com/2010/01/11/business/media/11merger.html?pagewanted=all&_ r=1&
Speier, Michael. Review: ‘The Big Heist: How AOL Took Time Warner’. Available at>http://variety.com/2003/more/reviews/the-big-heist-how-aol-took-time-warner- 1200544131/
