The merging of two known companies in the United States, AOL and Time Warner is judged as the merging of two companies done out of fear. AOL feared its business model required a continual adaptation to an internet that is changing. They also needed to ensure their broadband access is top notch (Verma, 2005). AOL required continuing with its growth by acquiring a strategy for the justification of getting a high market capitalization.
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On the other hand, Time Warner feared its outdated traditional network for media outlet required a facelift. They believed that, in order for them to remain competitive then, they required an immediate entry into the internet (Janis, 1971). Mergers that are done out of fear rarely succeed. In order for the understanding of their failure, the history and their market situation before the merging should be analyzed.
Beginning with Time Warner, they trace back to Warner Bros. In 1989, they merged with a publishing house Time and became Tine Warner. Time was able to acquire Warner for almost 14 billion dollars and transformed it to a multimedia company comprising of motion picture, record label, studio facilities, television networks, film libraries, magazine and book publishing.
In the year 1996, they intended to increase product portfolio and Time Warner were able to acquire from Turner Broadcasting System. “They turned out to rank second amongst companies with large cable television network,” (Verma, 2005).Through the company’s history, it is indicative that Turner Broadcasting, Time, and Warner expanded through acquisition strategies.
The situation of the market prior the merger: the company merged in the year 2000. This was “before the explosion of over valuations in internet companies,” (Verma, 2005). From Time Warner standpoint at that time, there were high expectations to regain the momentum in terms of growth from AOL which was a leading internet player.
Supernormal growth period and growth rate was in hindsight which is over inflated. It later on followed the growth of subscription of AOL. The downward spiral of Time Warner AOL’s development reflected loss in confidence with the market concerning the internet and it is symbolic for the explosion of the internet bubble. In 1999, there was a steady increase in AOL concerning the stock prices.
This was interrupted by a phase of decline in the year 1996. It also coincided with buying Turner Broadcasting System. However, in 1999, it started to remain steady and fluctuating around 60 dollars which is the mean value. This was indicative that AOL had a competitive advantage (Verma, 2005). It was unsuitable and clear that it would affect the financial transaction behind the merger.
It should be noted that financial transparency and accountability when handling mergers and acquisitions are vital for the success of the entire procedure. As a result, both companies had to ensure to ensure that all the financial obligations and procedures were fully met.
For Warner to merge with a company that already exists in the market, it was an effective way of distributing its content through online channels rather than building its own capability. Forming its own internet branch means it will be both time intensive and costly. The formation of the online branch was meant to create effectiveness in terms of expanding the market coverage of the company’s products.
This means that the products of the company would be accessible to the global market. The merging of Time Warner’s media contents, subscriber base and broadband systems would form a strategic advantage and synergy with AOL’s internet infrastructure, subscriber base and online brand of 30 million customers.
They considered the fact that by merging the two companies it would increase scope and scale thus strengthening the position it would have internationally (Brown & Harvey, 2006).
It is important to note that a merger has the ability to increase the effectiveness of a company both in the local and global market. It was for that reason that the two companies considered the merger. The intension of Time Warner was to merge its media content with AOL’s strong internet provision (Fisher, 1999).
AOL was first founded in the year 1985 under Quantum Computer Systems. It used to provide service and content to residential customers through dial-up modems. Initially, the customer that had the subscription from AOL was limited to their contents.
“AOL was known to be the first on-line service needing the use of a proprietary software, rather than that of terminal standard program, leading to a user interface that was graphical, which was ahead of the competitive market (AOL was known to be the online service which was recommendable for people who are unfamiliar with operating a computer, in contrast to the main competitive company CompuServe, who were oriented from the technical community,” (Verma, 2005).
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They grew in popularity as the internet was easily accessible to the world (Head, 2006). The company was able to change names to America Online in the year 1991. Due to aggressive marketing and intuitive interface they grew extremely rapidly towards the end of 1990’s. This was fueled by geographical expansion and a variety of acquisitions.
AOL had already 27 million subscribers by the time they were merging. This gave them the advantage of having 40 % of the total online subscribers in the United States.in eight years; AOL grew from a small internet company, competing in the market with companies like CompuServe and prodigy to a media conglomerate.
The drivers that are concerned with its growth and profitability shifted from subscription and focused on e-commerce and advertising deals.
The reason as to the merging, is allowing each company to get a share of the future internet of which both companies were unable to provide individually. AOL prime reason for merging was about technology and they were the dominant leaders in the early stage of internet application.
According to the Board of Directors of AOL, the brand portfolio created out of the merging would cover a large spectrum of information and media entertainment. They anticipated it would lead towards an increase in the company’s revenue in three major areas: content and e-commerce, advertising and subscription.
According to the merging of the companies AOL and Time Warner, the combination is known to be the worst that ever merged. In the headlines of The Telegraph on 21st November 2009, their posting read “Final farewell to worst deal in history – AOL-Time Warner.” This indicates the idea of merging was bad from the beginning.
Two men who were less known Gerald Levin Time Warner Chairman and Steve Case who is the Chairman of AOL merged. At that time, Time Warner was a media giant having a 14 billion dollar investment combination of Warner Communications and Time Inc. On the other hand, AOL effortlessly was able to overtake Netscape for 4.2 billion dollars. The gathering of the two was the first seed of failure.
“The AOL chairman pulled a long time board member of Time Warner aside and asked whether they took into consideration the idea of merging their two companies,” (Fishman, 2007). The board member went straight away and confronted his chairman. Steve Case declined of such a suggestion.
Three months later, after a few meetings in Boston and New York and a couple of house meetings, both chairmen announced their 360 billion dollars combination of Time Warner and AOL in the year 2000 on 10th of January.
The first big mistake that the two chairmen did was refusing to consult with their board member. It is essential for the leadership of an organization to seek consultation and approval from members of his team (“Cross-cultural Teams,” 2008). Negligence of this may lead to critical resigning of members because they feel their opinions are insignificant. The main reason as to why a team is formed is to assist in decision making.
Steve Case, the chairman of AOL broke the law of teamwork. He had a good idea on combining with Time Warner but he refused to consult his members of the board who are his teammates in the organization.
His negligence was caused but his presumption that his team would disagree with the combination and that is the reason he kept the idea to himself. In order for the approval, he had to involve no one in his team or board in making the decision.
This combination had never been observed before. The world’s largest internet distributors merge with the biggest media content in the world. Before the official merging of the two, things began to sour. Time Warner already had a damaging profit warning by December 2000. By the time it got to January 2001, the official merging of the two was indicative that the cultural clash would prove insurmountable.
The second problem was that the two Chairmen knew little of each other. In order for there to exist the merging of these two companies then, there had to be a thorough analysis in the companies and the leadership (Robbins & Judge, 2009, p. 340). Levin who was a lawyer by training, worked hard and in a short time his company Time Inc. was able to rise in the corporate ranks.
Because his company was growing rapidly and he had need of an internet strategy, he lacked the aspect of consultation and had no idea of how he would handle the crisis for the company. On the other hand, the background of Steve Case in the corporate began when he was 20 years old. He held the position of a marketer in the Pizza Hut (“Cross-cultural Teams,” 2008) Company.
After that, he became a marketer in a business that majored in delivering computer games by the use of telephone lines. This later grew largely and was named AOL America Online. This kind of information is very little for one to strike a deal like merging two competitive companies.
It is believed that their motivation for the combination of the two companies had no strategy or logic. It was full of ego. After the combination, their board discussions were disastrous and quickly became fraught. The largest shareholder and director of the company Ted Turner expressed his dislike towards Levin publicly. Levin and Case even came close to exchanging fists on several occasions.
It is impossible to have two people heading the same organization. It will either end in conflict or the organization will eventually underperform. The only time there can be two headships is, when there is power sharing (Fisher, 1999). This share is done in a way that one has to be submitted to the other. They can all share power but one will be of much authority than the other.
The first regulation in working as a team is to fulfill a common goal. When leaders are in conflict, it means they have different ideas and objectives in running the organization. As a result, it is possible to find variety of opinions within the organization which may both be helpful and destructive.
A team is more than a group of individuals. It is defined as a group of individuals having complimentary skills that have the aim of working together to achieve a common and specific goal (Levis, 2007). There are a few characteristics that make up a team.
They include: teams are accountable in the aim of achieving goals that are specific and common, teams function interdependently, teams are stable, teams have authority, and the operation of a team is in the form of a social context (Thompson, 2008, p.4).
A team is only as effective as the leader and team members combined. A team is only successful in collaborating when the individual thoughts are considered at all times. Communication and collaboration are both critical in any team success.
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Fisher, K. (1999). Leading Self-Directed Work Teams: A Guide to Developing New Team Leadership Skills. New York, NY: McGraw-Hill Professional.
Fishman, C. (2007). Whole Foods Is All Teams. Fast Company.com, Retrieved from https://www.fastcompany.com/26671/whole-foods-all-teams
Head, T.C. (2006). Strategic organization development: A failure of true organization. New York, NY: Information Age Publishing.
Janis, I. (1971). Groupthink. Psychology Today, 5(6), 43-46; 74-76.
Levis, D. (2007). Group dynamics for teams (2nd ed.). New York, NY: Sage Publications.
Robbins, S., & Judge, T. (2009). Organizational Behavior (13th ed). Upper Saddle River, NJ: Pearson Education.
Thompson, L. (2008). Making the Team: A Guide for Managers. Upper Saddle River, NJ: Pearson Education.
Verma, K. (2005). The AOL/ Time Warner Merger: Where Traditional Media Met New Media. Archipelle.com, Retrieved from https://www.archipelle.com/