Essay on AOL Time Warner

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AOL Time Warner

As AOL stock price fell precipitously after the announcement of merger, the real react of the market, it is better for Fred Grant to sell his AOL shares rather than viewing the low price as a buying opportunity. Since two companies are so different in many ways, the future of the new company is not promising.

Shareholders’ different expectations of AOL and Time Warner (TW) lead to the clash of new company’s goals. How to reconcile different opinions is very important in the new company. With 55%-‐45% stock allocation, TW will have to compromise when different goals occur, even decisions that hurt TW. New company also has to deal with culture conflicts. AOL is highly capitalized while TM focus on cash flow more. That results in different management, resources assigning, and profits gaining ways. Different leadership style leads to harder decision making. Plus different goals of shareholders, making a decision could seldom benefit the whole company. Giving up EBITA and adopting EBITDA, for example, TW changed the suitable bottom-‐line earning method. After merger, things like this will happen very often.

It is for sure that merging will benefit both somehow. They can broaden their markets, lower cost in some area, expand distribution, cross-‐selling opportunities, and get access from each other. However, merger is not the only way to get these benefits. AOL and TM could partner for advantages and still maintain flexibility as independent company. The bigger the company is, the less flexibility it has and react less quickly to small competitors and local companies. Since AOL wanted to expand fast home Internet access by cable, reacting quickly to local competitors is critical. The merger will give AOL the access but slow down its reaction. As

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