January 2001: Merger of AOL and Time Warner
The merger of America Online (AOL) and Time Warner in 2001 offered two superlatives: the biggest deal to date and possibly the most notorious.1 Nearly $200 billion in market value evaporated in the months following the announcement of the deal. CEOs and other senior executives of both companies resigned early or were fired. Alleged accounting chicanery triggered a government investigation. Disaffected shareholders launched class-action lawsuits. And eventually the AOL name was expunged from the corporate moniker. A sampling of some of the printable criticism about the deal includes these: “worst deal in history,”2 “disaster of belly flop proportions,” 3 “one of the greatest train wrecks in history,”4 “biggest and stupidest moment in the whole era,”5 “miasma,”6 “financial weakness . . . bamboozled . . . disaster,”7 “like the Mongolian invasion of China,”8 “catastrophic,” 9 and “largest annual loss in U.S. corporate history.”10
On January 10, 2000, Steve Case and Jerry Levin, CEOs of AOL and Time Warner, respectively, issued a press release to announce an agreement to merge their two firms, to “create the world’s first Internet-Age Media and Communications Company.”11 Upon announcement, the combined market capitalization implied in the deal was about $350 billion. It would be consummated with a share-for-share exchange. The exchange had no “collar” that would protect either side from adverse movements in share price. ...