Rethinking the AOL-Time Warner merger
“Were Time Warner to have acquired America Online and simply called it another division, there would be no crisis of confidence today. But in January 2000, when the deal was struck, that was not possible. That was at the peak of the Internet stock boom, and America Online was worth $200 billion, more that double the value of Time Warner, a far larger company by every other measure….”
The deal gave Time Warner shareholders only 45 percent of the combined stock in the company, even though Time Warner represented some 80 percent of the revenue and 70 percent of the operating cash flow. Talk of how the deal would create the “world’s first Internet-age media and communications company,” as the announcement said, was meant to convince investors that AOL’s sky-high stock market multiple should be applied to the combined company.