AOL Time Warner

Stephen P. Bradley, Erin E. Sullivan

CASE STUDY

QUESTION 1

1. Past mega-mergers had promised powerful synergies

   		investors were rarely disappointed in the long run
   		management differences were easily overcome
   		culture clashes and other issues frequently diluted the benefits of these mergers
   		none of the above

1 points

QUESTION 2

1. From 1998 to 2000, AOL's Net Income

   		grew from $115 million to 1,152 million
   		grew from $2765 million to $4777 million
   		decreased from $1,027 million to $115 million
   		stayed the same

1 points

QUESTION 3

1. Time Warner had been described

   		as a "series of sharp, tough, profit-oriented companies."
   		"a loose confederation of fiefdoms that were as likely to be at war with one another as with outsiders."
   		having a leading market share in virtually all of its business units.
   		all of the above

1 points

QUESTION 4

1. Tactical Synergies: Merrill Lynch estimated costs savings of about $100 million by removing duplicated operations such as customer support.

   Check all of the following that are true

   		Cost savings "related to duplicated operations such as customer support" means they plan on decreasing payroll enough to save $100million
   		Investors expected that these synergies would be among the first to be realized
   		reducing payroll by $100 million should be easy to do in a short period of time
   		this seems very unrealistic

4 points

QUESTION 5

1. $500 million in cost savings could be achieved by cross promotion through shared assets, including marketing, subscription renewals, telecom and network costs, and online business development. The merged company would offer AOL enormous cross-selling opportunities through Time Warner's cable (14 MM subscribers), television (35 MM HBO subscribers and 1 billion CNN viewers) and publication assets (120 MM readers annually). Mark any of the following that are true.

   		the above implies that AOL and Time Warner can advertise using each others' media.
   		If they use each other for advertising will they wont be losing other advertising revenue.
   		This is a transfer pricing problem. Each assumes to be paying cost. The other will then get less revenue.
   		For this to succeed a lot of advertising will need to be very successful

4 points

QUESTION 6

1. Transformational The final level of synergy offered by the AOL Time Warner management team consisted of new business that they could not yet envision, but they sensed the synergies were out there. Thus, the team had no concrete examples for the simple reason that no one knew what these types of synergies would be. Which of the following statements is true (select one)?

   		This is a good example of economies of scope
   		Time Warner has done a good job integrating its business units in the past. Blending with AOL should be easy
   		There may be some opportunities in the future. Shareholders deserve something more speicific for their money.
   		There is little risk to this merger