Aol Time Warner- What Went Wrong

In January 2000, AOL announced that it would be acquiring Time Warner through a complete stock deal to create the largest media company in the world. Not only was the merger the biggest ever in the media industry, it was also one of the biggest in the history of the corporate world. As per the merger agreement, AOL and Time Warner stock was converted to AOL Time Warner stock. AOL shareholders received one share of AOL Time Warner for each AOL share owned and Time Warner shareholders received 1.5 shares of AOL Time Warner for each Time Warner share they owned. While AOL shareholders owned 55% of the new company, the remaining was held by Time Warner. The merger was soon being talked of as the beginning of a new trend: the coming together of traditional and new media companies. According to a report, AOL was 'a turbo-charged engine ' that would bring old media giant, Time Warner, into the Internet century. The merger was expected to result in a 30% increase in profits, amounting to over US $ 40 billion in revenues in the first year itself. The new company had 100 million paid subscribers, which included the customers of AOL 's dial-up service and subscribers of Time Warner 's cable and magazine divisions. A major setback to the success of the merger was the bursting of the Internet bubble, which was expected to rule the media and entertainment industry in the 21st century. When the Internet bubble burst, there was a steep decline in subscriber growth for AOL, which led to a steep decline in its advertising revenues. Time Warner merged with America Online in 2001 at the height of the dot-com boom, with AOL using its inflated stock as a currency for the transaction. But the marriage of old and new media behemoths baptised quickly went sour as the benefits promised to shareholders failed to materialise. AOL was valued at more than $US150 billion when the ill-fated merger was announced, but its worth collapsed dramatically as the dot-com bubble burst.