AOL-Time Warner Merger

AOL-Time Warner Merger

AOL-Time Warner Merger

On January 11 , 2001 America Online and Time Warner merged to form AOL Time Warner . As the largest merger in corporate history it created the world 's leading media and entertainment company , whose businesses include interactive services , cable systems , filmed entertainment television networks , music and publishing (www .aoltimewarner .com ) The merger was viewed as the coming together of old media with new , and was believed to have enormous synergistic potential

Synergy can broadly be defined by as : 2 2 5 . That is , the sum of

the parts are greater than the whole . Synergies can come from a number of sources , which I explore in the next section . These include under exploited economies of scope and scale , synergies that arise from reduced internalized transaction costs , and financial synergies . I go on to discuss how did capital market pressures , product market challenges and weaknesses in core competencies impact on the failure of the group to achieve shareholder value from the merger . Then , in the final section I discuss , with reference to empirical evidence and the view of management and commentators alike , whether AOL Time Warner 's merger has failed

Reasons for merger

It is clearly evident from AOL Time Warners 2000 annual report management goal was to gain synergies from the merger "our blend of subscription brands in publishing , cable television , cable programming and digital interactive services gives us extraordinary opportunities for cross-promotion (The Economist Oct 26 , 2002 ) In 2000 , for example , AOL began bringing in more than 100 ,000 subscriptions per month to Time Inc . magazines , and the magazines were used to distribute AOL 's new 6 .0 disks for advertisers , creating new kinds of integrated packages that allow them to reach audiences with an intimacy , impact and efficiency never before possible . Global Expansion - they are also focused on opportunities for global expansion . Merger seen as a way to capitalize on the convergence of information , communications and entertainment industries as consumer demand more choice , control and convenience

Were synergies Not the Aim of the Merger

Mergers and other diversification strategies are not always pursued for the exploitation of synergies . Firms may merge in to reduce shareholder and management risk , or because of management 's personal objectives . In buying Time Warner using their vastly inflated share price AOL acquired tangible assets of an established and hugely successful firm . Cynics argue that the merger was merely a way for the firm 's shareholding management to pursue their own objectives and get rich quick . Not least because immediately after the merger , when the share price was far higher than it is today , 14 executives realized 256m , including the new CEO Mr . Parsons 35m ) and the former CEO Mr Case 50m (The Economist Oct 26 , 2002

Furthermore evidence suggests that top management 's salaries and prestige are correlated with corporate size rather than corporate profitability . A study by Hayward and Hambrick (1997 ) adds to the argument that management may have merged for their own personal reasons pointing to...