CORPORATE FINANCE

AOL And Time Warner Merger

AOL And Time Warner Merger

Introduction

Mergers and Acquisitions also known by its acronym in English, "M & A" refers to an aspect of corporate strategy, general management deals with the merging and acquiring other companies as well as other assets. The decision to undertake a merger or acquisition, a decision is economic, specifically is a decision of investment, meaning the allocation of resources with the expectation of future revenues sufficient to recover the funds invested and achieve some benefit (Federal Trade Commission, 2000). Therefore, a merger or acquisition will be successful if the purchase price is less than the present value (PV) of cash flow (EF) associated with incremental operation. If so, this investment decision creates value for shareholders and can be considered successful, otherwise it is said that destroys value and is considered a failure.

Merger: A merger is the joining of two or more people who decide to legally separate their assets together and form a new society. If one of the merging companies, it absorbs the assets of the others, we are faced with a merger.

Acquisition: An acquisition involves the purchase by a legal person controlling stake in another company without making the merger of their assets.

This paper would focus on the analysis of the merger between AOL and Time Warner.

AOL & Time Warner Merger

The merger of America Online (AOL) and Time Warner, on 10 January by representatives of both companies was announced, is the largest merger in U.S. history. The transaction was valued at the date of notification to 183 billion dollars (370 billion DM), with AOL shares worth $ 166 billion for Time Warner offered and agreed that the media conglomerate's debt in the amount of $ 17 billion to take over (Federal Trade Commission, 2000). The acquisition creates a new situation in many ways. It is the first time that one of the new corporate giants, which have emerged from the Internet boom, the enormous value used his shares in order to take on an old-established American company - and not just any big company, but one of the central pillars of the American economy. Time Warner is the largest media empire in the United States; it controlled newspapers, which together have a circulation of 130 million, several cable television channels, including CNN, and Warner Brothers Studios and Warner Music (Federal Trade Commission, 2000).

While AOL converts a significant portion of its book value real assets to cash, the shareholders of Time Warner, a high premium, because in the course of the stock exchange and a half shares of AOL Time Warner for each receive one of their current shares. The day, on which the merger was announced, the premium was 71 percent: AOL offered for the Time Warner stock that was trading at $ 64.75, $ 110. Even as the price of AOL shares during the week something to sink the business still meant a true orgy of enrichment for large shareholders, such as CNN founder Ted ...