{"id":23782,"date":"2021-01-15T18:53:34","date_gmt":"2021-01-15T22:53:34","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=23782"},"modified":"2021-01-24T18:10:40","modified_gmt":"2021-01-24T22:10:40","slug":"aol-time-warner-merger","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/aol-time-warner-merger\/","title":{"rendered":"AOL Time Warner Merger Leads to Historic Losses"},"content":{"rendered":"\n<p>What was the AOL Time Warner merger? Was it successful and how did it affect stocks and investments?<\/p>\n\n\n\n<p>The AOL Time Warner merger is an example of a small company absorbing a large company, and why this method fails. The merger caused major financial losses and stock price drops. <\/p>\n\n\n\n<p>Read more about the AOL Time Warner merger and the lessons we can learn about investing.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\">Investment Archetypes<\/h2>\n\n\n\n<p>When choosing investments, it\u2019s as important to avoid overhyped companies on the brink of failure as it is to choose <a href=\"https:\/\/www.shortform.com\/blog\/bargain-stocks\/\">bargain stocks<\/a>. Graham shows four case studies of companies that had astronomical stock prices but showed clear warning signs of their impending demise. Moreover, to detect their weak conditions, you wouldn\u2019t have needed to understand their intricate workings\u2014you could have used the basic financial metrics we\u2019ve covered already.<\/p>\n\n\n\n<p>Then, in his commentary, Zweig adds modern examples of each archetype.<\/p>\n\n\n\n<p>The four archetypes shown are:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>A giant company with signs of poor operating performance<\/li><li>An empire-building conglomerate that grows unwisely through acquisition<\/li><li>An acquisition where a small company absorbs a giant<\/li><li>A company with little substance riding a speculative wave<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>AOL Time Warner<\/strong> Merger<\/h3>\n\n\n\n<p>In 2001, AOL (America Online), a company with $6 billion in revenue, merged with Time Warner, a company with $27 billion in revenue. This was signaled as a \u201cmerger of equals,\u201d but AOL was clearly the smaller company. The rationalization was that AOL, the hot Internet company, was going to revitalize the old media company Time Warner.<\/p>\n\n\n\n<p>AOL was already on shaky ground:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The SEC had opened investigations into whether AOL had misleadingly represented marketing costs.<\/li><li>Half of AOL\u2019s assets ($5 billion worth) consisted of stock in other companies; if the stock market fell, its asset base would also fall.<\/li><\/ul>\n\n\n\n<p>The eventual result: AOL Time Warner reported a $99 billion loss in 2002, to date still the largest corporate loss of all time (after accounting for inflation), and an 80% loss in stock price.&nbsp;<\/p>\n\n\n\n<p>(Shortform note: The book doesn\u2019t go further into fundamental reasons for the business\u2019s failure, but general consensus points to 1) the bursting of the <a href=\"https:\/\/www.shortform.com\/blog\/dotcom-bubble-zero-to-one\/\">dotcom bubble<\/a>, 2) the disruption of AOL\u2019s dial-up Internet service by broadband Internet providers, 3) a clash of cultures between new AOL and old Time Warner that prevented real cooperation from materializing.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What was the AOL Time Warner merger? Was it successful and how did it affect stocks and investments? The AOL Time Warner merger is an example of a small company absorbing a large company, and why this method fails. The merger caused major financial losses and stock price drops. Read more about the AOL Time Warner merger and the lessons we can learn about investing.<\/p>\n","protected":false},"author":5,"featured_media":8642,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,81,14],"tags":[184],"class_list":["post-23782","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-economics","category-management","tag-the-intelligent-investor","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>AOL Time Warner Merger Leads to Historic Losses - Shortform Books<\/title>\n<meta name=\"description\" content=\"Did the AOL Time Warner merger work? The merger led to major financial losses for the company and an 80% loss in stock price. Read more.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/aol-time-warner-merger\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"AOL Time Warner Merger Leads to Historic Losses\" \/>\n<meta property=\"og:description\" content=\"Did the AOL Time Warner merger work? The merger led to major financial losses for the company and an 80% loss in stock price. 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