AOL - TIME WARNER

MERGER

RUSHIL PARIKH 2123240

ARCHI JAIN 2123260
KARTIK P JAYSWAL 2123321
 CONTENT
01 ABOUT AMERICAN ONLINE

02 ABOUT TIME WARNER

03 RATIONALE FOR COMBINATION

04 AIM

05 SUMMARY OF THE DEAL

06 POST ACQUISITION
 The company
changed its
AOL TIMELINE
name to Quantum
Computer
and Finally, the company
launched itself had been
Steve Case
an online named America AOL Europe
became CEO.
service named Online. had been created.
Q-Link.

1983 1985 1989 1991 1992 1993 1994 1995 1996

Steve Case The company The company's Number of

Number of
worked expanded Initial subscribers
subscribers
for upon Q-Link Public Offering. reached
reached 1 million.
Control with a 5 million.
Video, an new nationwide
online service
gaming named
services America Online.
firm.
 ABOUT AOL

PRODUCTS MARKET SERVED SOURCE OF REVENUE

Products: Online Portals,
Web Browsers, Instant
Messengers, Online Gaming,
Video Streaming
Markets: Individuals and
Firms.
Functions Served: Marketing,
Advertising, Entertainment,
Communications-Commerce.
Revenue Generation
Mechanism: Advertising,
Subscriptions.
 STRATEGIES
STRATEGY 1
Steve Case placed AOL as
the online service for people
unfamiliar with computers.
Steve Case focused on
Marketing as a competitive
advantage compared to his
competitors.
STRATEGY 2
AOL was a pioneer in
creating GUI chat services,
Interactive online gaming,
and the Chat room concept.
STRATEGY 3
AOL adapted its services to
multiple HW and
SW platforms: Apple II,
Apple, Macintosh, IBM PC,
Commodore 64, DOS,
Windows, Mac OS.
 STRATEGIES

STRATEGY 7 STRATEGY 8 STRATEGY 9

On the Corporate Level, the
On the Business Unit Level, The company implemented
company follows a
the company follows Broad its strategies from Within,
Diversification Strategy,
Differentiation by relying on its own
both in related and non
strategies, to appeal to as much knowledge and resources,
related businesses.
consumers as possible and to and from Outside, by relying
victor over competitors. on Mergers, Acquisitions,
and Mutual Agreements.
 INDUSTRY ANALYSIS AND AOL

AOL had been Internet Companies Highly successful

operating in a High Technology had competed with firms had no
Technology market, been young, with Technological physical assets that
still in the growth very fast growth Innovation. match their worth.
phase. and development .
ahead.
 TIME-WARNER
BACKGROUND
1989: Time Inc. and Warner Communications merged. The company was worth
$14 billion ( at that time).

1996: The Company acquired Turner Broadcasting System.

This brought WTBS, CNN, and TNT into the Company's portfolio.
The company became the 2nd biggest cable company in the United States.
 ABOUT TIME-WARNER

PRODUCTS MARKET SERVED SOURCE OF REVENUE

Books, Magazines, Journalism, Publishing, Advertising, Sales,

Cable TV Services, Media Production, Subscriptions,
Music, Retail, Theme Advertising, Ticketing.
parks, Film Production Entertainment,
& Distribution. Cultural Services.
 TIME-WARNER STRATEGIC
FORMULATION

STRATEGY 1 STRATEGY 2 STRATEGY 3

Time Warner focused on On the Corporate Level, the On the Business Unit Level,
Quality and Variety of company followed a the company follows Broad
Content as a competitive Diversification Strategy, Best Value strategies, to
advantage compared to its both in related and non appeal to as much
competitors. related businesses. consumers as possible and
to victor over competitors
 INDUSTRY ANALYSIS, CULTURE AND
STRUCTURE OF TIME-WARNER

Time Warner had Companies The company had, As a multi-layered

been operating in a operating in buttoned-down company, the
Mature Technology mature culture. company had a
market industries are Divisional form
risk averse and structure, with
have Middle Management
conservative personnel highly
management affecting the firm's,
systems. operations. This is
natural for a
company that follows
a Best Value
approach.
 RATIONALE FOR COMBINATION

Each lacked assets crucial
for competing in the internet
age and it seemed unlikely
that either would develop
those resources quickly
enough to Compete.
AOL will get a new
broadband distribution
platform for its services, as
well as new subscribers
through access to Time
Warner's media outlets and
will gain access to its cable
network,
Time Warner will benefit
from having access to the
digital era through
integrating with the largest
American ISP.
PURPOSE
"Create the world's first fully
integrated media and
communication company for the
internet century in an all stock
combination valued at $350 Billion."
SUMMARY OF THE DEAL

The merger was AOL TW shareholders 70% premium Company initially

structured as a shareholders would receive 1.5 price was decided. valued at $350
stock swap. would receive 1 new share for Billion.
new share for each share in Because of AOL"s
each share in TW. higher market Purchased accounting
AOL. capitalization, it method was used.
shareholders would
own 55% of the
new company.
 BENEFITS OF THE MERGER
AMERICAN ONLINE TIME WARNER

CONTENT ACQUISITION ONLINE PRESENCE

DISTRIBUTION CHANNELS DIVERSIFICATION

SYNERGY IN TECH AND MEDIA EXPANSION OPPORTUNITIES

POST AQUISITION STORY

Both Shares Dropped After the

01 announcements

Valuation problem due to different

02 nature of businesses between two
companies.

Changing the investor base due to

03 different nature of investor culture
between two companies.

Expectation of TW Advertisement
04 revenue decline.

05 Internet bubble effect of AOL

Unrealistic Valuation

$175B
AOL, modest revenue of $5 billion, and relatively small
workforce of 15,000 employees, valuated to be $175
billion due to the tech Asset bubble.

$90B
Time Warner, far more profitable upon $27 billion in
revenue, and had nearly 70,000 employees, valuated to be
only $90 billion.

Manipulation
Even before the ink from the merger could dry,
complications began to surface. AOL was accused
(rightly) of manipulating its accounting records to
favorably distort its financial picture
 Business Model Failure
1 2 3
Customers unwilling to Protecting IP on the AOL could not benefit
pay add-on internet was an issue. from Time Warner
subscription fee. cabling infrastructure
due to high required
investment enabling
data send / receive
methods.
 Management Commitment

AOL hijacking the Complete integration of

management due to its the companies and the
share % although it is the ability of both companies
small operation entity. to leverage the others
Leading to TW strengths was never
management team non materialized.
cooperative behavior.
IMPLEMENTATION AOL and Time Warner failed to

FAILURE implement their visions and

communicate them.

Marketing Time Warner

content through all channels -
AOL to benefit from TW
caballing infrastructure,
customer Base, cross selling

AOL and Time Warner were

not able to encourage a
climate within the companies
to initiate the synergies that
were proposed
 FAILURE TO RECOGNIZE
TRENDS AND CHANGE
They failed to offer broadband
access as soon as possible. So it
was the local phone companies to
have the first mover advantage
Voice over IP
(VoIP)
AOL Time Warner as the
main player in the
digital revolution -
hardly took notice of
this trend and they
failed to build a
business model for that.
Combined Music
Platform
Again, it was another
company to gain the
first mover advantage in
this area (Apple with
their introduction of the
iTunes Music Store).

High Personalized Web

Services (SN)

Examples are MySpace.com, a platform for everyone to express

oneself, which was bought by Rupert Murdoch's News Corp.
THANK YOU