Innovation at AOL-Time Warner

With the announcement of the $54 billion write off (called a "loss" in non-accounting circles) achieved by the "dream merger" of America Online (AOL), and Time-Warner, in the first quarter of 2002, the fifth quarter of operation, management is admitting what everyone else in the investment analysis industry had been saying for some time -- that AOL paid Time-Warner far more than what the company was worth on the day of the merger. One respected analyst for the Washington Post said:

Wall Street recognized instantly that the transaction was absurdly overpriced. But in retrospect nobody had a clue about what was wrong with merging AOL and Time Warner. AOL's stock price fell instantly because, analysts said, investors were worried about slow growth of the old-media family of Time Inc. and Warner Bros. Now it is AOL's stumbling growth that has investors worried. And the only "management wizardry" that has taken place is staying alive (Knight, 2002, 1)

It was to be a merger of amazing synergies. AOL was seen as a cash cow, a tremendous growth vehicle that had been growing 10 to 12 percent a year since its founder, Steve Case, had stopped peddling experimental pizzas and started selling online connections. He had turned AOL into a super ISP with some 35 million customers who paid monthly fees of about $20 to gain access to the Internet. And by 1999, when the merger talks began, his company was looking for media partners

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er is to build strength on strength. In other words, take what's good and what you are good at and build on them. What you do not do well, get rid of. That's what makes the strategic merger, not just a merger for merger's sake (Barmash, 1995, A42). If the merger is done well and if the partners and products can create synergy, then mergers can provide financial stability and the chance for survival that businesses might not have had. But simply having a synergistic mix is not enough. Barmash, in the article quoted immediately above points out that "many strategic mergers fail-an estimated 30 percent (vs. 70 percent of conglomerate or intra-industry transactions). This means that many of the thousands of people unloosed by these deals-12,000 layoffs are planned in the Chase-Chemical merger alone-may have been terminated for no valid reason (Barmash, 1995, A42). When a merger does not work out, the concept of "de-merging" enters the equation. The implication of this "de-merging" (a concept called "fractaling" in math and chemistry) is that both companies, when separated, will survive. In fact, they might even be healthier, since both companies can now be free to do what they do best. The Harvard Business Review in 1998 an
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Some common words found in the essay are:
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Approximate Word count = 2194
Approximate Pages = 9 (250 words per page)

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