Time Warner Case Summary

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Case Questions 1-2. The proposed merger would create value by exploiting operational synergies, as well as economies of scale and scope. The management teams were motivated by a desire to maintain corporate growth and increase shareholder value. Time felt that growth in the magazine business was limited and that video was the media of the future. Warner's cable operations would combine easily with Time's. Additionally, Warner had a leadership position in film, records, home video and TV programming. Time felt that Warner would provide additional distribution channels for its video productions. This integration would increase the return on Time's production costs and reduce the risk associated with video production. Warner's music business would allow Time to expand into that industry while Warner could also diversify by incorporating Time's publishing business. The Time management team also preferred the Time-Warner merger as it would allow Time's management to maintain editorial independence by retaining control of the combined entity. Time would also benefit from Warner's expertise in operating management, and its significant debt capacity. Warner's debt capacity and the combined liquid assets would provide cash slack and allow additional value-creating ventures. Case Question 3. Merging with Time would be beneficial to Paramount. The merger would provide Paramount operational synergies. Though both companies having publishing arms, Time is strong in magazine publishing – notably Time and Sports Illustrated – while Paramount is strong is paperback and hardcover publishing. The merger would create positive economies of scope for the new company, with its greater diversification in the publishing business. Organic growth in this area would be much more difficult for Paramount, due in part to entry barriers such as product differentiation.

Paramount’s initial bid for Time is beneficial for Paramount’s shareholders. When the bid was made,...
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