1.

Overview of AOL:

Introduction:

AOL established in the year 1983 as a web based gaming service providing firm, when its name
was Control Video, Steve Case worked for it. In 1985, the institution changed its name to Quantum
Computer and then it propelled Q-Link online service. This organization developed ‘America
Online’ which provided service to the whole nation. Lastly it (the entire organization) was renamed
as America Online in the year 1991. In 1992 it opened up to public in NASDAQ. In simply just
two years its share price enhanced 50000%. Steve Case progressed toward becoming CEO in the
following year. In 1994 its subscribers moved toward becoming 1 million. One year from now it
built up AOL Europe and it made 5 million subscribers in simply just a single year.

Organizational Culture:

It is a hi-tech driven organization with a culture of risk taking, advancement and adaptability. It
had an exceptionally responsive and quick paced administration culture. It had an adhocracy
structure where support staff are generally capable and hold most of the power. It made a draw to
team up and have a tendency to separate their items.

Key Formulation:

Steve Case put AOL as online service for those individuals who are new to use PCs. He
concentrated on promoting in light of the fact that it made a competitive convenience for them.
AOL was a pioneer in intuitive web based gaming, chat room idea and furthermore GUI chat
services. It adjusted its serving to different HW and SW platforms like Apple 2, Apple Macintosh,
Mac OS, IBM PC, DOS, Commodore 64 and Windows.

Items:

Web Browsers, Online Gaming, Online Portals, Video Streaming and Instant Messengers were its
main products.

Providing Services:

It provided services like publicizing, marketing, entertainment, web based business and
communications.

Instrument of Revenue Generation:

Publicizing and subscriptions were its main instruments of generating revenue.

Markets:

People and firms were its product’s market.

Strategy:

In corporate level it takes after a procedure of expansion both in the related and non-related
organizations. What's more, in the specialty unit level, it takes after wide separation strategies to
make interest to the customers at most. However, it likewise help them to victor over their rivals.
It executed its procedures by depending on its own assets and information from inside and from
the outside by depending on shared agreements, merger and acquisitions. The organization's
methodology paid off well, stock esteem had grown 50000% since the IPO. It purchased
CompuServe in 1998 which was its fundamental rival. At its top, it had 30 million subscribers and
turned into the primary ISP in USA.

Industry Analysis:

It had been working still in a development stage in a hi-tech market. Here innovation is quickly
expanding and different organizations try to compete with their different mechanical
advancements. In this industry very effective firms had no physical resources contrasted with their
value.

2. Time Warner’s Overview:

Introduction:

Time Warner is an aftereffect of merger of worth $14 billion amongst Time and Warner Brothers
in 1989.

Time Inc.:

Henry Luce and Briton Hadden made Time Inc. as a distributing firm in 1922. Its primary business
was magazine distributing. 'Time' was its first magazine which was distributed in the year 1923.
From 1930 to 1936 it propelled Life and Fortune magazines. Games Illustrated, Money, People
propelled in the year from 1954 to 1974. It was trailed by Cable Television by procuring American
TV and correspondence organization in the late 70s. It additionally established a superior link
service named Home Box Office (HBO). Presently it distributes 130 magazines.
Warner Brothers Pictures:

The Warner Brothers set up Warner Brothers Pictures in 1923 which principle business was film
creation. It licensed the vita telephone process in 1926. In 1928 it created the primary full length
film with sound. One year from now, it presented hued films. In 1930s, it delivered 100 film a
year. It was followed in the 60s by music generation and digital TV administrator business. It
wound up one of America's biggest music makers and digital TV administrators. In 1969 it was
obtained by Steven Ross' Kinney National Services.

Time Warner:

Time Inc. What's more, Warner Communications combined and built up Time Warner in 1989. It
obtain Turner Broadcasting System in 1996 which brought WTBS, CNN and TNT into its
portfolio. It turned into the second greatest link organization in USA and was worth $14 billion.

Key Formulation:

Time warner concentrated on quality and assortment of substance as an upper hand to its substance
contrasted with its rivals. On the corporate level, the organization took after an enhancement
technique both in related and non-related business. On the specialty unit level the organization
took after the wide best esteem systems to speak to however much shoppers as could reasonably
be expected and to victor over its rivals.

Items:

Books, magazines, cable TV services, music, retail, theme parks, film production and distribution
were its main products.

Providing Services:

It provided services like news coverage, publishing, media production, advertising, entertainment,
cultural services and so on.

Instrument of Revenue Generation:

Publicizing, sales, subscriptions and ticketing were its main instruments of generating revenue.

Markets:

People and firms were its product’s market.

Strategy:

The organization had refined, buttoned-down culture. Companies working in develop ventures
usually are risk disinclined and have conservative administration systems. As a multi-layered
organization, it had a diversified form of structure. Its operations were highly influencing by the
middle management staffs. It created a Pull to Balkanize and Standardizing Output. It is natural
for an organization that takes after a Best Value approach for its management system.

Industry Analysis:

On the Corporate Level, the organization is looking for Vertical Integration of the supply chain,
while in the meantime staying with the expanded in its business. On the Business Unit Level, the
organization is looking for Broad Best Value approach.

3. AOL-Time Warner:

In January 2001, merger amongst AOL and Time Warner had been declared. This merger intended
to "Make the world's initially coordinated media and correspondence organization for the web
century in an all stock blend esteemed at $350 billion". Sixteen years prior, AOL and Time Warner
reported their merger. AOL was persuaded that it would gain admittance to Time Warner's link
system and substance, and Time Warner figured it would get a huge number of new endorsers.
Yet, blending the way of life ended up being exceptionally troublesome; AOL was more forceful
(and pompous) which shocked Time Warner, a more staid and corporate culture. The two
organizations came to disdain and lack of respect each other and the guaranteed collaboration and
cooperative energies that would make this merger "transformative" never happened. The two
organizations in the long run separated.

4. Merger’s Time Frame:

In 2001, Internet mammoth America Online (AOL) converged with the media combination Time
Warner, in a goliath $165 billion arrangement portrayed as the biggest merger in American
business history. The merger was driven by a dream that the consolidated business would profit
by cooperative energies in innovative foundation, customer reach and tasks. The merger was
proposed to enable Time Warner to digitize its substance and connect with another online
gathering of people, consequently AOL needed access to Time Warner's link frameworks, offering
ascend to inventive broadband ability and extra substance to give to its 27 million supporters (40%
of aggregate US online endorsers). However by 2002 the merger brought about a net loss of
$99billion, the biggest misfortune at any point announced by an organization, and after 7 years,
when the two gatherings neglected to understand the collaborations, the merger, depicted when
Warner Chief Jeff Bawkes, as 'The Biggest Mistake in Corporate History' finished with the
partition of the two organizations. A few lessons can be gained from the corporate catastrophe, the
heritage of which can even now be felt in the M&A practices saw starting late.

- Rumors of merger - Stock value went down - AOL-Time Warner got split
- AOL booked $400 million from $226 to $20 billion into original companies
of their income improperly
October, 1999 January, 2002 December, 2009

2001 2007
January September - Several lawsuits filed against AOL-Time Warner
- Merger announced - Dot-com bubble - Managers of AOL liquefied personal shares
- Loss of $99 billion - Used corporate money to repurchase stock

5. Deal Information:

The merger was organized as a stock swap due to AOL's higher market capitalization, its investors
would possess 55% of the new organization. AOL Time Warner was to exchange under the ticker
AOL and it was at first esteemed at $350 billion.

AOL was the first Internet Service Provider in the US. Time Warner was the second Cable
organization in the US. Consolidated income was over $30bn. The consolidation was to make the
world's first worldwide, completely integrated media and correspondences organization for the
web century. The merger was organized as a stock swap. AOL investors would get 1 new offer for
each offer in AOL. TWX investors would get 1.5 new offer for each offer in TWX. 70% premium
cost was chosen in view of AOL‟s higher market capitalization, its investors would claim 55% of
the new organization. Organization at first esteemed at $350 billion.

6. Objectives:

 Creating world's first worldwide completely integrated media and communications

organization for the web century was its main objective.
 Provide the clients with each conceivable media (web, TV, magazine and so forth.)
 Expanding the wide range of consumers
 Provide most developed Fiber Optics and Digital Technology systems

7. Reasons for the Merger:

With the merger, Time Warner needed to disseminate its substance through the new media, which
is the place an organization with AOL, the main web player at the time, appeared well and good.
For Time Warner, constructing its own online channel would be too expensive and too tedious.
AOL saw converge as an approach to grow their arrangement of brands, accessing the abundance
of substance that Time Warner has. AOL likewise trusted that Time Warner will help its exertion
in building the cutting edge broadband through its current link frameworks. Preceding the merger,
AOL was looked with expanding request from the market to create all the more promoting deals
to meet desires. AOL was not ready to do this all alone, and the merger was an approach to keep
a decrease in stock valuation.

The blend of Time Warner's broadband frameworks, media substance and supporter base made
huge cooperative energies potential and vital favorable circumstances with AOL's online image,
web foundation and its own endorser base of 30 million. Development potential was predicted to
originate from new administration and income openings and cross-promoting openings, while cost
sparing open doors was required to originate from the joined showcasing exertion and cost
decrease in propelling and working new advances. With the scale the consolidated organization
has, they trusted that they can use on its scale and extent of universal nearness and position to
underwrite advertise openings.

8. Situational Analysis:

Qualities

HR: These two has unparalleled assets of creative and journalistic talents. These have also
excellent management expertise which can be their strengths.

Reputation: AOL was the first ISP and Time Warner the second Cable Operator. It facilitates the
merging process to become more awaiting.

Huge Customer Base: 30 million AOL supporters and 12.7 million Time Warner clients,
additionally Time Warner's magazines had in excess of 268 million readers. Alliances with driving
brands and retailers, making publicizing a gigantic hotspot for revenue. The mix of Time Warner's
substance and link with AOL's Internet dispersion capabilities makes the merger so hard to
duplicate. The union will enable the two organizations to go worldwide.

Information and Learning: The organization is on the edge of every new development and
technologies.

Financial Resources: Stock Combination esteemed at $350bn. Combined Revenues of more than
$30bn in the US. Combined Revenues of more than €250mn in Europe. The capacity to take in
more obligation if necessary. The organization's financial quality enables it to take after a forceful
procurement strategy. Online advancement will decrease cash spent on daily paper and promoting
media. Cross-Marketing will lessen the showcasing spending plan significantly. The capacity to
cut divisional expenses as immediate mailing costs are cut for online reestablishment services.
Warner Music can carefully convey its substance instead of fabricate a great many minimal circles.

Shortcomings

Physical Resources: AOL experienced for quite a while low quality of service. AOL's conveyance
framework experienced the Last Mile problem.

Human Resources: Top Managers in the two organizations had no data about the consolidation,
and a considerable lot of them had concerns and reluctance.

General Organizational Resources: Neither AOL nor Time Warner had a noteworthy worldwide
position, AOL Time Warner led under 20%of its business abroad. Time Warner had a terrible
notoriety among web financial specialists as an Old, Traditional, Slow Growth company. The
organization structure was bizarre for speculators and can't be effortlessly valued. AOL's plan of
action needs time and critical capital investment.

Financial Resources: Time Warner experienced tremendous obligations, from which AOL
expected $17bn. Share costs were declining because of the drawn out endorsement process. AOL
Time Warner's joined esteem was $205bn after endorsement of the deal. Time Warner experienced
high deterioration and premium charges.

Mechanical Factors: The fast conversion between media, computing, and communications
technologies. The quick development of internet technologies and its uses.

Socio-Cultural Factors: The rise of a new era made them anxious to get the most out of the internet.
Economic Factors: During that period there was a huge investments in e-companies.

Benefits

Economic situations - US: AOL's additional esteem will secure it from nearby rivalry and raise the
section barriers. The passage obstruction is as of now high because of required investments. The
organization would now be able to raise costs, as it gives extraordinary administrations to its
customers. The dealing energy of clients is high, as Entertainment administrations are not critical
for people groups' lives. The haggling energy of providers is low, as the organization claims its
own particular suppliers. Competition was serious just in the Media and Cable markets (Disney),
while in the ISP showcase AOL had an enormous hole in front of its rivals.
Legal Factors: The consolidation required endorsement from the FTC, which was a protracted
process. The FTC was worried about antitrust issues and link get to worries about the merge. The
blend required surprising extra endorsement from the FCC. Operations in Europe required
endorsement from the European Commission. Time Warner needed to drop its joint wander design
with EMI to advance with AOL merger. AOL needed to confine Bertelsmann AG to advance with
Time Warner merger.

Socio-Cultural Factors: A potential hazard was a strike by screen performers and essayists, which
can affect the company. An issue of ensuring Intellectual Property Rights on the internet. Customer
unwillingness to pay add-on membership charges.

Risks

Monetary Factors: Volatile stock costs came about because of the adjustment in speculator base.
The website bubble was at AOL's entryway, changing numerous organizations from dot-com due
to devaluation in innovation stocks. Investors were worried about the merger, uncommonly after
the disappointment of Lycos-USA Networks merger in 1999. Inevitable withdrawal of here and
now financial specialists' cash while the organization anticipated approval.

Technological Factors: Solving AOL's last mile issue all inclusive would be extremely expensive.
Interoperability among partitioned Instant Messaging brands was a noteworthy concern.

Economic situations – US and Global: Increased Uncertainty about the market at that time. The
Advertising Market – a noteworthy hotspot for income – was softening. Technology options
existed, for example, Satellites, Fiber Optics, and DSL.

Intense rivalry from the accompanying firms: Vivendi Universal, News Corp, Walt Disney,
Bertelsmann.

Execution Risk: Huge distinction in culture because of contrast in technology stage can cause an
impact of lack of synergy if not tended to properly. Too numerous huge names in the official
administration group, which can make issues in decision making. The new administration group
weighs vigorously for AOL, which can make issues.

9. Pre-Merger Analysis:

Ecological Analysis
Each needed resources essential for contending in the web age and it appeared to be improbable
that either would build up those assets rapidly enough to contend. AOL and Time Warner found
in the other correlative qualities which recommended the likelihood of a commonly helpful
relationship.

AOL:

Industry: Growth of Substitutes

Rivalry for dial-up get to was expanding significantly (Yahoo and MSN).

Market: Rise of Broadband

With altogether speedier information exchange speeds than dial-up, broadband web begin to blast.
Huge phone organizations profited as early first movers. While AOL had the brand and validity to
endless supply of this region, it did not have the foundation.

Monetary conditions: Tech Asset Bubble

AOL was among the most exceptionally esteemed organizations in the word at $175 billion by
showcase upper casing, in spite of its absence of gainfulness, humble income of $5 billion and
generally little workforce of 15000 representatives.

Time Warner:

In the interim, Time Warner was considerably esteemed at $90 billion significantly more
productive upon $27 billion in income and had about 70000 workers. AOL appeared like the
response to Time Warner's advanced petitions access to a quickly developing business sector, a
great many clients for its media content and a demonstrated web brand to use its broadband
business.

Authority Strategy Analysis

Control Accountability:

Administration did not practice enough authoritative control and specialist did not stream down
the control pyramid enough to make representative responsibility.

Technique Drift:
Authority neglected to convey Time Warner's huge film, distributing and music advantages for
AOL's huge supporter base.

10. Value effects of AOL Time Warner Merger:

AOL Times Warner went into a "stock swap" with one of its helpful wander accomplices in the
main quarter of 2001. In the stock swap, in addition to other things, AOL Times Warner paid for
the accomplice's 55% enthusiasm for their joint wander. Parallel to other round-trip exchanges in
which AOL Time Warner supported its income, AOL Time Warner and the accomplice settled on
a price tag of $700 million, with the understanding that the procurement cost would be expanded
by $25 million in swap over for the accomplice's responsibility regarding buy $25 million of web
based publicizing from AOL Time Warner. AOL Time Warner unnaturally swelled its web based
promoting income in each quarter of 2001 and the primary quarter of 2002 by improperly recording
$25 million in internet publicizing income. The Company did not reaffirm its money related
outcomes to pivot the $25 million perceived as income for this business bargain in the 2002
Restatement.

Altogether, the Company improperly expanded its internet promoting income in light of the
Homestore-related exchanges by in any event $1.5 million in the final quarter of 2000 and $7
million in the main quarter of 2001. In its 2002 Restatement, AOL Time Warner repeated its
budgetary outcomes to pivot these sums. As far as concerns its, Homestore altogether exaggerated
its announced monetary outcomes for the second from last quarter of 2000 and the first through
third quarters of 2001 in light of inadmissibly perceiving the accompanying measures of income
on AOL related exchanges: $1.5 million in the second from last quarter of 2000, $15 million in
the principal quarter of 2001, $18.5 million in the second quarter of 2001, and $3.3 million in the
second from last quarter of 2001. Homestore has repeated its monetary outcomes to upset the sums
for 2001(The Associated Press, 'AOL-Time Warner Merger Unites Distinct Personalities' in The
New York Times on the Web. January 10, 2000. 689-690).

In assessment of the AOL-Time Warner merger; The Washington Post, calls attention to that the
greatest merger in corporate history is beginning to resemble the greatest bumble. Mutually the
two organizations were worth more than $300 billion when the merger was reported. Today, AOL
Time Warner's fairly estimated worth is $105 billion, and it could go down further after the
organization reports its first-quarter income not long from now. The story inspects in close
component what has gone off base and whether the media mammoth will ever achieve its
profoundly advertised potential (Hu, 2001).

Overloaded by AOL's inconveniences and neglected to spot budgetary objectives, AOL Time
Warner has seen its stock lose more than 66% of its incentive from the time when its post-merger
hit the most noteworthy point. The organization is anticipating its internet promoting income to go
down 35% to 45% from the $1.3 billion detailed in 2003, usually in light of the end of blast period
contracts.

11. Other Issues Come Out after Merger

The purposes for the disappointment can be abridged just like the result of a disappointment in the
due constancy procedure of assessing hierarchical similarity, together with the absence of
execution of the development methodologies. The meeting room and social contrasts of AOL Time
Warner implied that the organizations never genuinely consolidated and the reconciliation just
occurred at a shallow, corporate level. Insider reports asserted that the way of life were excessively
extraordinary and the representatives at the two organizations appeared to hate one other. This was
aggravated by an extremely precarious administration structure, with the two organizations
quarreling over the best official positions, prompting four people taking the desired Chief Financial
Officer spot in the space of three years and the acquiescence of Time Warner CEO, Gerald Levin
just a year after the merger following a question.

Production of a negative monetary collaboration:

Maybe the most noteworthy reason supporting AOL Time Warner's disappointment was the
production of a negative monetary collaboration because of the merger. Due to the 'Website'
Internet rise of the late 1990's, AOL's stock cost was essentially exaggerated. It had encountered a
stock cost increment of 1,468% between the years 1996-2001, furnishing it with a swelled market
capitalization of $226 billion at the season of the merger. This ended up being an issue since the
arrangement was a 'stock-for-stock' merger, implying that Time Warner, notwithstanding having
a higher yearly turnover than AOL, was as yet the littler organization by advertise capitalization
and was just given AOL's offers, viably making the 'merger' by and by, an obtaining. In the
meantime, Time Warner in the year 2000, preceding the merger got administrative endorsement,
was at that point seeing a fall in benefits and a 14% diminishment in share cost. By 2001, after the
merger was finished, the 'Website' bubble at long last burst, prompting a noteworthy diminishment
in estimation of the AOL division and misfortunes of $99 billion. When of the de-merger in 2009,
AOL's esteem was an unimportant $5.7 billion and the aggregate estimation of the two
organizations was a seventh of their pre-merger cost.

Lack of synergy:
There was no synergy obtained from this acquisition as thought of. Every division was working
independently. Integration amongst human resources did not happened appropriately. Top
management was simply blended because they were not differentiated in view of their abilities to
do so. Employees may have felt awkward due to different workplace with new environment. The
question remained in their mind was who will own the management system.

Over valuation of AOL:

It is extremely hard to assess any software firm compare with other asset based organizations,
since assets can without much of a stretch be assessed compare to an innovation based
organization. Cooperative attitude of the organization was excessively and its value has been lost
from $220 billion to $20 billion.

Technological risk was not viewed:

Internet bubble burst caused problem for the organization. Management did not consider the
significance of authoritative culture and structure for guaranteeing survival. The organization
neglected to address cultural contrasts among its representatives despite the fact that it had
unmatched human resources and also different physical, innovative structural body. The structure
of the administration group caused tremendous clashes among workers, extraordinarily from Time
Warner's side. The organization additionally experienced AOL's astonishing downgrading in light
of the dot-com bubble.

12. Lessons can be gained from this Merger:

The unquestionable disappointment of the merger can be taken to strengthen the significance of
directing appropriate due-perseverance before taking part in business exchanges. A more
exhaustive review of the two organizations may have uncovered a few dangers inborn in the inner
and outer condition of the two organizations, which may well have kept the merger from regularly
occurring.

Another lesson to be gained from the disappointment is that regardless of what may appear like a
splendid key move of coordinating two organizations, without clear vital arranging or execution,
even the most deliberately stable mergers can come up short. Truly, mergers have a dreary
reputation for progress. A 2010 review by McKinsey and Co found that almost 70% of mergers in
their database neglected to accomplish the income cooperative energies expected by the
administration. This isn't to state however that mergers ought not to happen, since coordinated
effort can once in a while bode well especially when the noteworthy expenses of giving another
administration ends up unimaginable without an association. Notwithstanding, organizations
should think painstakingly, especially in bargains as large as AOL Time Warner's, of the dangers
required with taking part in a merger.

We can witness the move towards a more due persistence driven and chance unfavorable way to
deal with bargains, by taking a gander at the current M&A offers of 2014. Most quite the $80
billion 21st Century Fox offer for Time Warner. In spite of guarantees of noteworthy vital and
operational collaborations, the offer was pulled back by Fox after worries that the procurement
would make a negative monetary cooperative energy by causing an undervaluation of Fox's stock
cost because of the misleadingly expanded cost of Time Warner's stock. Together with
affirmations of extreme wavering and the nonappearance of a flawlessly convincing assertion
when Warner administrators, who were naturally mindful of participating in another arrangement
of this extent.

13. The Way to a Fruitful Merger:

The way to a fruitful merger is figuring out which culture is being merged into which. Co-making
a brand new culture without any preparation needs a great deal of hard work with a generally low
chance of being successful. The more direct and more prone to be effective approach is to pick
one culture as the host culture and merge it into another one. Vocus' merger of iContact is a valid
example where acquisition of iContact was that much important to the point that they assembled
totally a new headquarter for iContact with the spirit of Vocus central command. On the other hand
here is a contrasting example of Philip Morris/General Foods' merging with Kraft. Despite the fact
that General Foods did the merging and they blended the General Foods culture into Kraft.

Obviously you need to characterize the value creation and completely incorporate the business
organizations. The fact of the matter is that these are part of the culture of merging process, not
separate endeavors. Corporate culture is the main upper hand and the underlying driver of any
merger's disappointment or achievement. It has that competitive and sustainable advantage. Clarify
your decisions about the new, consolidated entity’s practices, connections, dispositions, qualities
and the whole condition. At that point demand holding onto those decisions as a condition for
remaining on board. In the below we can see the key features to do success in a merger.

1. Evidently characterize the particular value that will be made from the merger:
O'Flaherty revealed that AOL and Time Warner needed something particular from each other
– however the result of what that really looked like for clients was never thoroughly considered,
nor conveyed. And he doubts whether Verizon and AOL were ready to commit similar errors
again. How new value will be created that should be specific and it is so vital for a successful
merger.

2. Fully incorporate the two businesses:

We've all observed institutions that merge another association and afterward run them as
entirely possessed, distinct organizations. Anyone can't realize the synergies in anyway, out of
particular associations. Collaborations must be made together by groups looking beyond to
new issues by themselves and it can be solved for others by them.

3. Protect cultural similarity:

O'Flaherty called attention to the cultural conflict that happened amongst AOL and Time
Warner may happen once more. Verizon was tied in with designing while AOL was more
imaginative, more salesy. So there were no cultural compatibility between them and without
some concentrated treatment there was no way to collaborate those two.
14. Conclusion:

In doing a merger and acquisition it is very important to do the pre-merger and situation analysis
before starting the merging process. Cultural synergy and fully incorporation and integration is so
important for this process. This merger will bring which portion of value addition to both of the
companies that should be more specific. It can be helpful to do a successful merger and acquisition.