The document summarizes the 2000 merger between AOL and Time Warner which aimed to create the world's first integrated media and communication company valued at $350 billion. The merger was structured as a stock swap that gave AOL shareholders 55% ownership of the new company. Major problems arose from combining the different cultures of AOL, a growth-focused internet company, and Time Warner, a mature asset-focused media company. There were issues integrating compensation structures and a lack of synergy between divisions. The merger significantly overvalued AOL and failed to yield the forecasted synergies, with AOL's goodwill declining from $220 billion to $20 billion. By 2002, it was clear the merger had not met expectations.

1. The AOL and Time
Warner Merger
BVCR
Aarushi Jain
Deepak Jain
Irfan Warsi
Himanshu Hirwani
Chirag Bohra

2. Company Background
AOL
● ISP in US in high technology
and in growth phase
Time Warner
● Mature Technology

3. AOL Time Warner
● In Jan 2000, it had been announced the
Merger between AOL and Time Warner
● The Merger aimed to
¤“Create the world’s first fully integrated media and
communication company for the internet century in an
all stock combination valued at $350 Billion”

4. Deal Information
● The merger was structured as a stock swap
● AOL shareholders would receive 1 new share for each
share in AOL.
● TWX shareholders would receive 1.5 new share for
each share in TWX.
● 70% premium price was decided
● Because of AOL‟s higher market capitalization, its
shareholders would own 55% of the new company.
● Company initially valued at $350 billion

5. Question 1
Are major problems likely when combining
different cultures in this combination of “Bricks
and clicks”?

6. Bricks
● More focus on process
● More Focus on Raw
Materials
● Focus on breakthrough
technology
● Asset focussed company
● No or Low Goodwill
● Old Culture
● Large Organization
● New products and division
take time to add
Clicks
● More focus on results
● No focus on raw materials
● Focus on creativity and
innovation
● Not too much Assets in the
company
● Higher goodwill
● New Culture
● Small Organization
● New products and divisions
are easy and quick

7. Problems after merger
● No Synergy was obtained from the merger as thought of.
● Each division was working separately.
● Human resource integration did not happened properly.
o Top management was just mixed, they were not divided based on
their capabilities
o Employees might have felt uncomfortable because of different working
environment.
● Who will own the management
● Over Valuation of AOL: It is very difficult to evaluate any software company
as compared to other asset based companies, because assets can easily
be evaluated as compared to any innovation based company.
● Good will of the company was too much and has lost its value from $220
billion to $20 billion..
● Technology Risk was not considered: Internet bubble burst created
problem for the company.

8. Question 2
Discuss the issue of the integration of diverse
compensation Structures between Time
Warner and The AOL?

9. ● 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, specially from Time Warner’s side.
● The company also suffered from AOL’s surprising devaluation because of the
dot-com bubble.

10. Question 3
Has the merger yielded the synergies
forecasted for 2001 and 2002?

12. Currently they are Separate
companies

13. Thank you