AOL AND TIME

WARNER
Group No. 2

Presented by:
Edla Rachana P42017
Anish Reddy Adireddy P42063
Sahil Bohra P42150
Routhu Deepak P42038
Rahul Bokkala P42144
Likitha gollu P42071
 AOL
 It was a brand committed to continuously innovating, growing, and investing in brands and experiences that

inform, entertain and connect the world.

 AOL was a pioneer in creating GUI chat services, interactive online gaming, and the chat room concept.

 Products: online portals, web browsers, instant messengers, online gaming, video streaming.

 Markets: individuals and firms.

 Functions served: marketing, advertising, entertainment, communications, and e-commerce.

 Revenue generation mechanism: advertising, subscriptions.

 The company followed a diversification strategy on a corporate level, both in related and non-related businesses.

 On the business unit level, the company followed Broad differentiation strategies to appeal to and victory over the

competitors and the consumers.

 AOL
 The company implemented its strategies from within, by relying on its own knowledge and resources and from
outside by relying on mergers acquisitions, and mutual agreements.

 The company at its peak had 30 million subscribers.

 The company became the premier ISP in the USA.

 AOL had been operating in a high technology market in the growth phase.

 Internet technology had been on very fast growth and development.

 The culture was risk-taking, innovation, and flexibility, the company had Adhocracy structure, where the
support staff is the most powerful like the R&D who are tending to differentiate their products.
 TIME WARNER

 The company also founded Home box office(HBO) a premium cable service.

 In 1923 the warner brothers founded the warner brothers pictures.

 The company became one of America’s largest music producers and cable television operators.

 In 1989 Time Inc and Warner Communications merged.

 The company was worth $14 billion ( $138 billion in today’s money).

 The company became the 2nd biggest cable company in the united states.
 TIME WARNER
 On the corporate level, the company followed a diversification strategy, both in related and non-related
businesses.

 At the business unit level, the company follows broad best value strategies, to appeal to as much consumers as
possible and to victor over competitors.

 Products: books, magazines, cable tv services, music, retail, theme parks, film production and distribution.

 Markets: individuals and firms.

 Functions served: journalism, publishing media production, advertising, entertainment cultural services.

 Revenue generation mechanism: advertising, sales, subscriptions, ticketing.

 THE MERGER
 10th January 2000, Steve Case and Gerald Levin, announced the merger.

 AOL would pay $183bn in stock for Time Warner.

 AOL would assume $17bn of time Warner’s debt.

 AOL would own 55% of the Time Warner.

 Stock combination value was $350bn.

 REASONS FOR
MERGER
While no single business dynamic or competitive strategy propelled AOL into its merger with Time Warner, we

believe that three key considerations significantly influenced and guided AOL throughout the decision process:

1. AOL sought to transform and reposition the company to capture an increasing amount of value as the nature

of consumer online activity changes and evolves over time.

2. AOL's decision to move more deeply into the media and communications world by way of this strategic

acquisition arose out of Steve Case's corporate mantra and mission statement: To make AOL as essential as

the telephone and as entertaining as the television, and more valuable than both.

3. The particular combination with Time Warner was motivated by a desire to gather the necessary brands,

content, people, financial firepower, and distribution assets to build a wide array of wholly new interactive

businesses.
SWOT ANALYSIS OF AOL TIME WARNER
MERGER
STRENGTHS WEAKNESSES
• AOL’S Brand recognition. • Culture clash.
• 30 million customer base. • Lack of synergy.
• Time warner’s experience with media • Lack of strategy execution.
and their existing content.

OPPORTUNITIES THREATS
• Time Warner’s content being • Phone companies.
available to only AOL users. • Dot com bubble burst.
• Internet usage innovation. • Competition on content.
 VALUATION

Time Warner ( Target firm) AOL ( Acquiring firm)

Estimated Valuation: 16 Billion $ Estimated Valuation: 1.6 Billion $

Beta : 0.9 Beta: 1.75

Risk-Free rate: 5.11% Risk-Free rate: 5.11%

WACC: 19.9% WACC: 28.5%

Debt/equity ratio: 64.8% Debt/equity ratio: 5.16%

Interest rates: 20.4% Interest rates: 5.91%

 POST AOL TIME WARNER
MERGER
Industry at that time:
• There was a lot of speculation about internet firms in the years running up to 2000. The NASDAQ climbed 400 per cent
from 1995 to early 2000, due mostly to dotcom businesses. Stocks would rise by 1000 per cent or more in value,
individuals abandoned their jobs to pursue full-time trading, and investors would hand over large sums of money with
no strings attached.

• America Online was the big dotcom player and internet companies were booming.

• The unsustainable dot-com world collapsed. By November 2000, most internet companies had lost about 80% of their
stock value. Right after America Online had invested $165 BN in the merger. Advertising vanished, its stock plummeted
from $56 to $14, and in 2002, it had to write off $99 BN, double what people expected.
 POST AOL TIME WARNER
MERGER
Reasons for Failure:
• AOL was badly wounded by the rise of broadband internet access, which subsequently killed off dial-up.
America Online was too slow.

• Management did not take into account the importance of Organizational Culture and structure for ensuring
survival.

• The company failed to address Cultural Differences among its employees, although it had unmatched physical,
technological, and human resources.

• The Structure of the management team caused huge conflicts among employees, especially from Time Warner's
side.

• The company had no specific structure as it had a mix between a Divisionalized firm and an Adhocracy based
firm. This created conflicts among personnel.
 CONCLUSION

• Assessing potential cultural obstacles in a structured, focused way should be as much a part of M&A due
diligence as product forecasts, data rooms, and strategic brainstorming. 

To achieve synergies
• Spearhead the cultural assessment with a team of HR executives, team leaders, and line employees from
both companies. 

• The goals: 
a) Understand differences in the two cultures – including motivations, values, work methods, and social
behaviours.

b) Identify key cultural “leaders” to retain and enlist in post-merger activities.

c) Create a blueprint for cultural values that will define the new entity.
THANK
YOU