AOL Time Warner: The Worst Hostile Takeover / Merger in History
Amidst the high-speed, high-stakes, occasionally corrupt and constantly enthralling world of corporate drama… There lies a very exciting, commonly misunderstood and always juicy move, known as a “takeover” and even juicier than that… A “Hostile Takeover.”
Right now, there just so happens to be a trendy tale of hostile-takeover-action happening before our very eyes: Between a Mr. Elon Musk & Twitter the Biz.
Today.. We’re delving into the world that brought us to this moment in tie.. The world of hostile takeovers…
This is the story of… The largest & MOST DISASTROUS hostile takeover of all time..
This is the story… OF AOL-TIME WARNER!
First things first up in here…
What in the heck is this “hostile takeover” nonsense?
Why would such a thing be possible?
In the simplest of simple terms, simply put: A hostile takeover is a corporate acquisition that occurs AGAINST THE WISHES of the ‘acquiree’ company.
It’s a takeover.. But hostile.. Instead of, you know… Not hostile...
Look at it in two parts:
A TAKEOVER is just the ol’ act of one company making a big fat bid to buy a Majority of the shares of another company: Therefore ACQUIRING them – Takeover/Acquisition = bigger company buying smaller company
This “takeover” situation can be hostile or it can be friendly.
And you know the difference between hostility and friendliness, I would assume?
These hostile takeovers occur because the “target company” and their board of directors DO NOT AGREE with the “acquiring company” and their board of directors… They don’t necessarily wanna be bought out, ya know? Yet, that doesn’t have to stop this acquiring company..
There’s a couple of methods to the madness that can makeup the process of a big ol’ hostile takeover- Ya got the Tender Offer method, the proxy FIGHT method, and the method of negotiation leading to a public declaration of a “merger of equals” yet broken down into a clear majority ownership going to the acquiring company… Well the world ain’t so black and white folks. That’s why this story’s a juicy one.
So thus: the process of the infamous “hostile takeover!”
The Process of “The Hostile Takeover”
“Lay it down on ‘em Chris.. What’s that process? What that process be?”
This sucker goes down TWO potential paths here…
Path 1: THE TENDER OFFER!’
The tender offer is just what it sounds like.. A nice, seasoned, meaty offer to outstanding shareholders up in there at the company: AT A PREMIUM compared to the current market price, so the shareholders get a sexy little cherry on top of their offer.
Path 2: THE PROXY FIGHT!
The proxy fight is a much-more involved mission.. It’s a journey of persuasion.. To convince shareholders to utilize their proxy votes to bring down the corporation’s management and bring in a brave new team to change things.
The tale we have before is quite the exciting one for a great many reasons… One of the major ones being, that this big old business moment in history is considered a “hostile takeover” dependent on who you ask… Perspectives play a part in the record of history.. We’ll get to the specifics on what the heck I mean by all this in due time… For now…
ACT I: The Start of Our Tale – AOL Time Warner: The Worst Hostile Takeover / Merger in History
Folks, it’s time we got to the story here.. The roller-coaster tale that went on to be called “The Worst Merger in Business History”
To start things out… Please, join me and.. IMMERSE YOURSELF!
Jump back in time to the late-90’s. It’s a tech party, baby! Boom, boom, bam..
This is that beautiful period we know and love, referred to notoriously as the “DotCom Bubble”
The world of tech-innovation was everything… The talk of the town.. Of wall street.. And of the dinner table.. Because the world as we knew it was rapidly changing around us.
And do you know who the leader of this internet-forward movement was? The technology ruler of all rulers? Was it Google? Microsoft? Apple?
Well actually… It was AOL..
America Online, AKA, AOL was the lion amidst the animal kingdom. This was THE company. Undeniable, unstoppable, rapidly growing: At a peak, AOL had 35 million customers accessing the internet with the help of their business. The mountain grew higher and higher and higher! So much so, that.. You wanna know what valuation they reached by 1999?
$222 BILLION DOLLARS, FOLKS. It was a behemoth!
For context, that’s bigger than MODERN DAY, RIGHT NOW:
Netflix.. American Express.. McDonalds.. Comcast.. Disney!
I mean.. Damn!
And then- On the flip-side of this: I’d like us to all take a quick look at what you might call the opposite of this business. Please welcome – Time-Warner
Opposite in that Time-Warner is a legacy-player. An established, household name. An old-school conglomerate, legendary business in the big-leagues of the action.
So, in the quickest & slickest…. Sum-Up With Chris…
What was TimeWarner?
TimeWarner was a multinational, oh-so-massive, entertainment conglomerate that merged Time Inc. with Warner Communications, and Warner communications was but a parent company, restructuring move to house the real deal legacy player; Warner Bro. Entertainment Incorporated – Which dates back 99 years of American Business – As does Time Inc. – Both having been founded in the early 1920’s – Warner Bros on April 4th, 1923 and Time on November 28th, 1922
This, as you can see, is a pretty drastic difference in terms of established corporate presences – When you compare to the likes of AOL – Which, at the point in the 90’s that we’re immersing ourselves in – Was roughly 10 years old, as “America Online” — A mere baby, you might say..
Well.. This baby got goin’ quick… This cake.. Got baked in a high-speed convention oven, I say… And I truly have no idea if that metaphor is even close to working. I’m not a big bake-man.
And in January of 2000 – All the pieces of the puzzle lined up. The storm clouds of chaos began to form, right there at the peak of the tech bubble..
ACT II: The Characters
It’s about time you met two important characters in our tale:
First.. Mr. Steve Case – CEO of AOL betwix the years 1991 & 2001
Second.. Mr. Jerry Levin – CEO of Time Warner Inc. betwix the years 1972 and 2003.
These two gentlemen are in fact the two puppet-masters behind the move-to-be.
Under the rulings of Steve Case, AOL grew into the giant it was across the mid-to-late 90’s. And in this dot-com-bubble-fueled financial world, the whispers began to grow in the late 90’s specifically. Whispers that AOL, in order to take advantage of its IMMENSE stock value, needed to use that juicy juicy capital to make one hell of an acquisition.
So the whispers got more specific… Talk around the town started saying AOL was plotting a move.. What move you say? Well, the rumor was…
A HOSTILE TAKEOVER!
Our good friend, Mr. Jerry Levin, began to hear whispers. Specifically, there were two frightening outcomes that poured paranoid into Mr. Levin.
- The outcome of AOL moving in and puting in a bid for a HOSTILE TAKEOVER of Time Warner
- The outcome of AOL & AT&T sneakily forming a merger and becoming the ultimate powerhouse of the technological revolution…
See, you might just need some context here, friend. Building up to this window, this very moment of time within the world of Time Warner: Jerry Levin was a powerhouse of innovation. Lemme quote this one directly from a writeup talking about the man himself:
”Levin also had been at the forefront of nearly every advance in television technology since the 1970s. Levin, in 1972, persuaded his bosses to transmit HBO cable programs by satellite instead of by videotape, which led to an explosion of the number of possible cable channels. It was also Levin who, after orchestrating the marriage of Time Inc. and Warner Communications in 1992, looked to leverage the company’s publishing and movie businesses by pushing more aggressively into the cable business… Levin later bought Turner Broadcasting System, giving his company a wide array of cable channels to feed through his pipes.”
So in Jerry’s eyes, the next logical, strategic and JUICY MOVE – Was to use cable’s speedy pipes for connecting to the internet and for receiving phone calls.
This, folks: Was where AOL & AT&T were thrivers. Thriving rivals with a head start on this race.
Soooo… Back to the paranoid growing within Jerry – If these two rivals joined forces, Time Warner wouldn’t stand a chance in this race… And with that, he didn’t have any interest in being on the receiving side of a hostile takeover.
SO TIMES WERE TENSE UP IN THE MIND OF JERRY LEVIN.
Which brings us to a big, monumental moment in the great history of all things.
The date: October 1st, 1999 — The place: Tiananmen Square, China.
The occasion: The 50th anniversary of the People’s Republic of China
It was here, that it just so happened to work itself out, where Mr. Jerry Levin AND Mr. Steve Case were both invited to attend. And even crazier than that… Jerry was seated directly in front of Steve, mere inches from one another. It was here… The unexpected friendship began to form..
ACT III: The Start of The Friendship Between Jerry Levin and Steve Case
The friendship birthed and blossomed amidst their China stay. In this time, beyond the dinners and pleasentries between Steve, Jerry and the wives: Time Warner scheduled a board meet here in China, so Steve ended up meeting all sorts of various board member folks running the company. Though it wasn’t till ONE MONTH LATER – That the topic of big business moves would be brought up.
Now, back in the U S of A – Stevey Case calls Mr. Levin up on the phone for a little chat. And in that chat, for the first time: He alludes to the gentle idea of their two companies being put together as one. Jerry plaid defensive at this point: going back straight to the muscle memory responses of “we ain’t for sale, busteR” and what-have-you. So the discussion ended there in its tracks. UNTIL – The dinner date
About a week or so after their chat on the phone – Steve and Jerry met up for a little dinner and wine action at the Rihga Royal, smack dab in midtown manhatten..
And as a turns out.. This was no ordinary dinner. In fact, this evolved to become a multi-hour, hard-hitting discussion focused on philosophy, values and overarching vision. No business details. No numbers. Nothing like that. Purely ideologically, all about the hypothetical combined world they could potentially build together: And the broader impact they could have upon society.
And well…. The lengthy discussion went well. And those discussions evolved into more discussions, which evolved into meetings of more people: And before we knew it, both teams, AOL & Time Warner, assembled their negotiating teams. Because BABY… IT WAS ON!
The deal was officially sealed at a dinner in early January – At Steve’s home in Virginia.
In the world’s eye, this big, fat deal was presented as a “merger of equals” – BUT in actuality, AOL with it’s big, thick valuation, was taking over Time Warner as a majority owner in the merged entity – Owning 55% of the new company, leaving Time Warner with 45%
So the PROCESS BEGAN. REAL DEAL NOW.
Everyone was alerted of the news – The teams of executives were finally filled in – And as it turns out…… No one was thrilled about the news..
The executive team at Time Warner was NOT loving this big, bold merging plan.
Well, too bad, so sad.. It was on, baby.
And on February 11th 2000 – The deal was officially filed – With a FINAL APPROVAL date of January 11th, 2002 – And so, on that day the merge was completed.
Setting the scene, FOR THE REAL CHAOS TO COME…
Within AOL Time Warner: The Worst Hostile Takeover / Merger in History
THE RESULTS: AOL-TimeWarner Merger.
Folks, let me tell you a thing or two about bad timing. Bad timing can really ruin what previously appears to be beautiful potential.
Sometimes when you go on vacation, a storm ends up swinging by overheard and there’s just nothing you can do about it. You planned the trip, you got your tickets, you packed your bags. You did all the things you could’ve done, yet here come the clouds and there lies the storm, here to ruin the fun for you and everyone (RHYME)
The merger – takeover – Acquisition – Whatever you wanna call it – It began in Jan of 2000 – A time of technological THRILL – High speed gains, innovation, pure excitement. And it came to fruition in Jan of 2001 – But unfortunately, a storm came by in March of 2000 – To throw a real damper on this family vacation… That storm?
The POP of the Dotcom bubble.
Between this massive market crash of the tech sector specifically AND the fact that AOL started rapidly losing market share to the GrOWTH of high-speed broadband providers: Things got ugly QUICK.
Tensions grew rapidly: Excitement for this takeover was very, very brief, if at all. Resentment, dread, spite: The offices of AOL Time Warner were apparently quite an ugly stomping ground at this point in time. The “expected synergies” of AOl & Time Warner divisions never came into existence.
AOL President AND COO Bob Pittman predicted beforehand, that the slow-moving Time Warner would finally be able to take off “AT INTERNET SPEED” accelerated by the one and only: AOL.
Well, sorry Bob. Life is full of disappointment..
The Numbers Behind AOL Time Warner’s Failure.
Folks, I’d like to, with you right now, take a little look… AT THE NUMBERS! (BOOOOOM)
AOL officially bought Time Warner for stock, initially valued at $165 billion dollars: Combining the company into a value-behemoth clocking in at a total of about a $350 billion dollar market cap at the peak of the excitement. This sucker was, at this point, the LARGEST merger ever in American Business History. And you ready for this tragic, poetic fact.
A mere two years later, in 2002, the merged giant reported a loss of $99 billion dollars – At that point, the largest loss ever reported by a company, in American Business History…. Ooooof…
The value of AOL stock tumbled on down from $226 billion dollars to about $20 billion dollars across this span. Very, very, unsexy this was.
So yeah, as I said: There was tension in the office. There was resentment that Time Warner folks had for AOL folks. And naturally, there was an ugly war happening amidst the leadership of AOL-Time-Warner too.
The End of Jerry Levin at AOL Time Warner.
The tension built and built and eventually led to a public outburst by company Vice-Chairman Ted Turner at a board meeting in 2001 — This outburst pushed our friend, Mr. Steve Case to the limit. Steve jumped into action. Tragic action, perhaps. Steve contacted each of the directors to push for CEO Jerry Levin’s removal. His former friend, Jerry.
Steve’s attempted coup ultimately failed. But in a sense, didn’t. The directors stopped the coup. But Jerry became more and more frustrated with not being able to control this company. To save this ship. And so… He handed in his resignation in the fall of 2001, and officially stepped down in May of 2002.
Steve Case eventually lost his position of Executive Chairman of the board of directors in 2003 – Then eventually resigned from the board in 2005….
AOL Time Warner dropped the “AOL” from its name in July 2003 – After a long-run of removing leadership from the AOL disaster. This was a symbolic “cutting of the fat” – Bringing the company officially back to the former title of just “Time Warner”
A big, fat, undo of AOL Time Warner.
A Mr. Jeff Bewkes went on to become CEO of Time Warner in 2007, and he publicly described the merger as “the biggest mistake in corporate history.”
Between the money lost, the leadership reputations, the employee stock options, the brand image: Perhaps it was the biggest mistake in corporate history.
But hey, at least we get a pretty wild story out of it!
And I like to stay on the positivity side of things now, then and again: And it’s worth remembering: That prior to overseeing the disastrous acquisition this was: Jerry Levin was a legend!
He played a pretty substantial part in developing modern cable, he pioneered the EXISTENCE of HBO, he was the man who pushed the merger between Time & Warner. Then With Turner Broadcasting and CNN.
I mean, AOL was just another play for innovation that didn’t work out. But don’t hate Jerry for trying to change the world of entertainment. Because the man had an impressive record of doing do.
And Steve Case: I mean come on.. The man saw innovation early. He was CEO of the leading Internet company prior to and going into the INTERNET BOOM. No matter the outcome; his vision was undeniable, and he played a part in the modern world of the internet we now surround ourselves with.
So maybe this was the biggest mistake in corporate history.. The worst of the worst… But you know what? Everybody makes mistakes. Everybody has those days.
And that there is all I got for you on this one.
The Tale of AOL TIME WARNER…
It’s certainly a wild one. The early stages of a potentially world-changing hostile-takeover turned into the biggest business merger in history, evolved into the worst corporate decision ever. Wow, oh wow, friends. That one was a doozy.
If you want more juicy tales from the world of money, check out the rest of my Money Lore videos on my channel! Stop by, stay a while, make yourself at home.
And with that: Thank you so much for reading through this tale! This has been… AOL Time Warner: The Worst Hostile Takeover / Merger in History.