Executive Reading: October

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    Together, these two would create “the world’s first fully integrated Internet-powered media and communications company.” Or, in The Wall Street Journal’smemorable summation of those dizzying days: “A company that isn’t old enough to buy beer has essentially swallowed an ancien re?gime media conglomerate that took most of a century to construct.” And, as an ex-Time exec noted, AOL was “using inflated Internet wampum to buy real assets.”
    The agreement to merge, tenuous until only hours before it was submitted to the Time Warner board, proceeds at Internet speed. Snags occur. What should be the stock exchange ratio, despite the huge market valuation of AOL? Who’s buying whom? (It became a “merger of equals,” but in reality AOL was the acquirer and its people took most of the top positions in the new company). Should Case have a role? Willing to let Levin be CEO, Case would be an active chairman and not in a non-executive role Levin envisioned. This almost became a deal-breaker at the last minute.

Salvation in a Whirlwind
Accomplished in a whirlwind atmosphere, the deal started falling apart immediately. Of course, AOLers loved it. In essence, their company had been saved by the combination. Time Warner people, almost to a person, were offended by not being consulted, were shocked and against the merger from the beginning. The squabbling between Levin and Case grew more intense and more infantile.
    Ted Turner, the largest shareholder (who saw his shares drop in value from $10 billion to $2 billion) and a director, turned against everyone, saying he should have bought Time Warner and fired Levin before Levin could fire him. Other than Turner, who turned against the deal afterward, board approval was a rubber stamp before and after the merger.
    Along with these hurdles, AOLers put in charge weren’t familiar with Time Warner’s disparate businesses, including magazines, cable, movies and music. The merger was doomed from the start. Plus, the stock market began its free fall. By autumn of 2000, only months after the merger, the NASDAQ index was trading around 3000, down 40 percent since March of that year. It was to tumble even farther.
    The new company faced other pressing problems, like delivering on overly optimistic financial forecasts and cost-savings in light of the collapsing economy. Munk does a superb job reporting how AOL Time Warner started its dubious accounting to buoy revenues to satisfy Wall Street. 

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