Contemporary Issues Paper Week Five - Contemporary Issues 1...

Contemporary Issues
Contemporary Issues Paper
ADVANCED TOPICS IN FINANCIAL MANAGEMENT FIN/404
University of Phoenix
March 16, 2009
Introduction
The business world today is in a state of constant change. In this sea of change
business managers are always looking for ways to turn a better profit. The way that this is
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Contemporary Issues
best done is to gain a strong competitive advantage over the other companies in the
market. One way that finance managers can accomplish this is to merge with another
existing company. This can often create or maintain a competitive advantage in a
relatively quick manner. The firms were already highly successful at the time and the
vertical merger of the two firms was intended to become a media entertainment
powerhouse. The AOL-Time Warner merger was the largest merger to date at the time
and was intended to drive revenues in a huge way by combining entertainment and
internet on a scale that was heretofore nearly unprecedented.
America Online-Time Warner Merger
The America Online-Time Warner merger was known as the second biggest
merger of all time, up until the year 2000. This was considered the fantasy of total
control, dream domination, that had allowed the world’s largest ever merger, the coming-
together of Time Warner, with its world news from CNN, it’s 5,700 films, its Time
publishing empire, and 120 million magazine readers, its TV show such as Friends and
ER and its cable channels: and America Online, the world’s biggest Internet provider,
with over 23 paid subscribers (Marr, 2000, ¶1). This type of merger is known as a vertical
merger. A vertical merger is defined as two companies that produce different but
complimentary products (Tatum, 2008, ¶1). Although AOL and Time Warner were
already both successful companies, they voluntarily joined together so that they would be
able to dominate a different part of the market. If they did not merge, neither company
would be able to pursue the business venture on their own. “This strategic combination
accelerates the digital transformation of Time Warner by giving our creative and content
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Contemporary Issues
businesses the wildest possible canvas,” says Gerald M. Levin, Time Warner’s chairman
and CEO, who will become CEO of the combined entity (Time Warner & AOL in Mega
Merger, 2000, ¶1). The companies’ strategy of this vertical merger was to create a strong