Time Warner and AOL epic fail.

This is a tale of how not to maximise shareholder wealth.


January 10th 2000 Shareprice $72.62.
AOL and Time Warner merge. AOL being valued at $200bn and Time Warner valued at $160bn.


December 5th 2001 Shareprice $34.75.
Gerald Levin CEO quits. One of the original architects of the merger.


April 24th 2002 Shareprice $19.30.
Accounts published showing the mergers failings.


July 18th 2002 Shareprice $12.45.
Robert Pittman, Chief Operating Officer quits. He was responsible for integrating the two companies into one.


July 25th 2002 Shareprice $9.64.
SEC investigate Time Warner AOL's accounting practices after allegations of 'unconventional transactions' leading to inflated revenues.


January 13th 2003 Shareprice $15.03.
Steve Case CEO quits. Another original architect of the merger gone.




It is argued by Forbes.com that in 70% of mergers and acquisitions shareholders would be better off if they didn't happen.
So if the main purpose of a company is to maximise shareholder wealth what went wrong with the Time Warner AOL merger?


At the outset of the merger Time Warner and AOL no doubt thought that this merger would maximise shareholder wealth and create value for the companies in the short term. Alfred Rappaport would argue in his Harvard Business Review "Ten Ways to Create Shareholder Value" that chasing short term investment is not always the best option even for a quick fix of cash. In his opinion investing in the option that will increase shareholder wealth is the best option for all concerned. From looking at the results of the AOL and Time Warner merger it has to be argued that a short term gain was the principle motive for the investment, if only they'd done thorough market research to know that the dot.com bubble had burst and AOL was losing value rapidly.
The resignation of Robert Pittman is telling as he was the Chief Operations Officer responsible for the merger of the staff on all levels. A successful merger relies on a Merger or Acquisition strategy. This was a huge failure for the venture, the companies had no strategy in place to become one. 




This is a good example of when mergers and acquisitions go badly and a bad example of how to maximise shareholder wealth.