The merger between AOL and Time Warner, the biggest merger in U.S. history, happened ten years ago. It is now generally considered to have been the worst merger of all time.
Hindsight is 20/20, but I clearly remember that when I first read it I thought it was a joke. I was working in Silicon Valley, as I still do today, and it was obvious that the Valley was in the boom part of its regular boom/bust cycle. Money was pouring into Internet companies, but it was obvious that it was a bubble headed for a crash. That’s not hindsight either, it’s what I and plenty of other people thought at the time.
So AOL’s stock price was obvious vapor, especially considering that cable modems were starting to spread and AOL had no obvious plans to get out of the cheap dialup world that it lived in. AOL’s walled garden had already disappeared into the wider Internet.
Time Warner, on the other hand, was a serious company with real products and real continuing customers. Actually they turned out to be heading into a terrible decade along with the rest of the media, but I didn’t see that coming. The notion that they would merge with AOL—actually AOL’s market cap was higher so it was more of an acquisition of Time Warner by AOL—seemed completely laughable to me.
A friend of mine suggested that the real goal was for Steve Case to put real grounding under AOL’s absurd market cap, by using it to buy a real company. I’m not sure I agree—I think Case may have really believed that AOL somehow deserved its market cap. I have no idea how he convinced everybody else involved. It just seems so obviously crazy on the face of it.
Of course, one thing arguing in favor of the merger is that our form of capitalism requires companies to always grow, which is very hard for very large companies to do. At some point, the personal incentives for executives are such they will do better if they do something even if it looks crazy, because doing nothing will certainly not lead to growth. I haven’t checked I’m sure the executives who agreed to the merger did fine out of it.
There have been mergers which I thought would fail but turned out to more-or-less succeed, such as HP/Compaq. But I always thought AOL/Time Warner one would fail, and on that one I was right.