Chapter 14

Mergers and Strategic Alliances

Essential Idea: Find Another Business Willing to Invest in Your Business

As the eighteenth-century Scottish poet Robert Burns once noted, the best laid plans of mice and men often go awry. That certainly was the case with one of the most famous, and definitely the largest, merger of all time: that of AOL and Time Warner in the year 2000, valued at a whopping $350 billion.

The master plan was to merge the old world media of Time Inc. with the new e-world dominance of America Online. The result was supposed to be a business behemoth that would annihilate everything in its way. When the deal was announced, Steve Case, a cofounder of AOL, called it a “historic moment in which new media has truly come of age.” Gerald Levin, the CEO of Time Warner, saw the merger in even bigger terms. At the time, Levin said, “The values that we feel we can leave as a legacy . . . have a lot to do with the social destiny of people everywhere.” (Time magazine, January 24, 2000.)

The best laid plans . . .

The new conglomerate never meshed, let alone found synergy from the combination of old and new media. The company proved to be too big, too clunky, too disparate. The AOL–Time Warner stock price tumbled, there were investigations by the SEC and Justice Department, and in the end, the combined value of the companies once they split again, late in the decade, was about one-seventh of their value on the day of the merger.

Ted Turner was the largest shareholder ...

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