The Stress Test Every Business Needs

5Do your acquisitions consistently pay off for shareholders?

Brian Salsberg

Was it the best of times or the worst of times? In 2000, CEOs Gerald Levin and Steve Case announced that Case’s America Online would be acquiring Levin’s Time Warner for about US$182 billion in stock and debt. At the time, it was the largest takeover ever. Time’s own Fortune magazine reported on the “widespread confusion about the payoff in this deal.” How should Wall Street evaluate this transaction, the unprecedented acquisition of an old, storied media company by a new, digital one? Veteran journalist Carol Loomis wrote, “The murkiness won’t be dispelled soon. Even at internet speed, it will take some time for the world to judge whether AOL overpaid in offering 1.5 shares of its stock for each Time Warner share, or whether Time Warner sold its impressive assets too cheaply, or whether this is truly a marriage made in heaven.”¹

Since then, the union has become the poster child for matches made in Hades. Two of AOL Time Warner’s problems were the dot-com crash and then the corporate-culture clash of analog-content creators and digital-content distributors. Its stock price plummeted, and Levin left the company in 2002. The board approved the diplomatic Richard Parsons to replace him, and Parsons braced shareholders for the turnaround.² In a few years, he indeed helped turn the company around, dropping AOL from its name and restoring Time Warner to its perch as the world’s most profitable media company. ...