May 27, 2009
Deals from Hell
In his book, Deals from Hell , Robert Bruner catalogs many of the worst M&A deals of recent memory. These deals are great for teaching purposes -- mostly to help students get a handle on how and why parties do transactions. One of the lessons of these deals is that even very smart people, who are making lots of money, can make big mistakes. Buried in chapter 12 is the Time Warner - AOL deal. While the bubble-like hype of that deal suggested AOL Time Warner would be on the cutting edge of the new media world that the dot com bubble was creating for us, the truth turned out to be somewhat less than that. Bruner quotes a WSJ reporter as writing about the deal - "A company without assets was buying a company without a clue." By the time the deal finally closed in January 2001 it was a deal that should not have made any sense to anyone. The dot com bubble had already collapsed - revealing the true valuation the company whose shareholders now held 55% of the stock of the combined company.
One wonders what was motivating all that talk of synergies and next generation media was about. Road Runner -- Time Warner's version of @Home (another cable-based Internet service provider, but at the time owned by Cox, Comcast, and TCI) - never cottoned on to creating a cable-based AOL broadband service. Seems like the creation of a cable-based AOL broadband service would have been the very first thing the parties should have done after the transaction closed. But they didn't. The Road Runner brand lived on and the AOL dial-up service has been dying a slow death for years. That the FTC required an open access policy for ISP providers on TW's networks didn't help.
Well, the good news is that after having years ago written of the cost of the acquisition and dropping the AOL name from corporate moniker, it now looks like AOL will be spun off and go its own way. According to TechCruncher the Time Warner board will meet tomorrow to decide to spin off AOL. This decision has been a long time in coming. More as the deal develops.
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