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A case of world biggest Merger which failed between AOL and Time Warner
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Why Mergers and Acquisitions fail?
Jai Singh
What is meaning of merger and acquisition A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. Example-Company A+ Company Company C B =
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. Example-Company A+ Company B = Company A
Why Mergers and Acquisition Fail?Cultural difference
Flawed IntentionNo guiding principles No ground rules
Overly conservative targetsNo detailed investigating Keeping information to close
Poor stake holders outreach
Mr Steve Case and Mr Gerald Levin
AOL-Time WarnerAOL and Time Warner are merg red in 2000.
AOL was a internet company.Time Warner was a media company. It was largest merger in American history. In January 2000, the Internet service provider America Online (AOL) announced its intention to merge the media company Time Warner. The purchase price, $165 billion in AOL stock, set a merger record.
Company Vision To build a global medium as central to peoples lives as the telephone or televisionand even more valuable. To provide its users with a service that was fundamental to their lives.
AOL Time Warner-Goal The goal of merging of AOL and Time Warner was to create a distribution channel whereby Time Warners media products would be delivered to millions of consumers via Internet broadband. Time Warner brought media products and a television cable network to the combination.
Case's Offer to Levin Case eventually offered 45% of a combined AOL Time Warner to Time Warner shareholders. Under the terms of the deal, Gerald Levin would be CEO of AOL Time Warner, while Steve Case would be its chairman. Ted Turner, the creator of CNN, was a major shareholder in Time Warner. He was the vicepresident of AOL-Time warner.
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Trajectory
AOL Time Warner Market Capitalization Jan 2001 - Dec 2002
Date
Appeal of Time Warner as a target Time Warner one of the largest media firms Publishing properties included Time, People magazines ~25% of ad revenue among U.S. magazines Warner Music group Warner Bros studios WB network, HBO
Reasons for merger: AOLAOL/Time Warner would be first integrated Internet-powered media/communications company Complementary assets would stimulate growth of subscription and ad/commerce revenue AOL would drive digital transformation of TW divisions
AOL estimated $1 billion of synergies in first year of operation
Reasons for merger: TW TW traditional properties would be brought into the new media age AOLs Internet infrastructure would provide new distribution outlet TWs broadband systems would provide platform for AOLs interactive services
Cultural difference Team member culture
AOL-centrally managedTW-divisional structure
Employees get emotionally confused in the new environment.
Flawed Intention Ego of executives
Top executives often tend to go for mergers under the influence of bankers, lawyers and other advisers Due to mergers, mangers often need to concentrate and invest time to the deal.as a result, they get diverted from their work
No guiding principles and rulesTop level fail to develop and guiding principles Ample of leaders but no able leaders
No one at the top of the company really tried to persuade the people
Overly conservative targets , no detail investigation and lack of communicationAOL and Time Warner failed to implement their visions and communicate them .
Poor stake holders outreach, Keeping information to close and lack of motivation
Management didnt communicate properly internal and external stakeholders. Information kept secret in top level and mainly AOL staff AOL and Time Warner were not able to encourage a climate within the companies
Reasons for Later Disappointment Original value of deal significantly overpriced
AOL paid for TW with stock was to fall, so TW stockholders lost out badly Growth now very slow Many people who go high speed choose not to maintain AOL subscription The more optimistic and overconfident are executives, the more they engage in mergers, and the more they leave their investors persuation.
How to prevent the failure Continuous communication- employees, stakeholders, customers, suppliers and government leaders. Transparency in managers operations
Capacity to meet new culture higher management professionals must be ready to greet a new or modified culture. Talent management by the management
Thank You
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