Prediction time: this year, we will see a repeat of the Time Warner - AOL deal, which to this day ranks as one of the largest mergers of all time (technically, it was an acquisition, AOL bought Time Warner, subsequently saw its value crash, wrote down $99B in loss and the joined entity is now simply Time Warner again).
Let me be clear: yes AOL + TWX turned out to be one - if not the - most catastrophic M&A ever. Time Warner shareholders would probably drive to my office and kill me if I did not specify that. But much like we have seen vestiges of Web 1.0 repeated and prevail, I think that 2008 will mark a deal that a traditional media company will buy, merge, or sell to a new media company. It is inevitable.
Let me be bold: AOL and Time Warner failed due to timing, strategic fits and deal structure, the grand notion of media and technology meshing can create a lot of value, but that deal was ironically at the tail end of the dot com boom but ironically before its time.
January 2000 marked the beginning of the end. The NASDAQ peaked in March at 5,000, after all. The premise of Time Warner joining forces with AOL, however, was not bad then nor is it bad now. The landscape has changed, too. In fact, AOL was neither based on the world wide web nor was it a broadband company; it provided dial-up access to a walled garden on the Internet. On price, AOL had no business being worth more than Time Warner, but it was. Had Time Warner bought AOL, would the deal be perceived with such animosity?
Frankly, I wonder if Time Warner executives understood the full implications to all of that and the broader macro-landscape of the time. Surely, the mantra of distribution over destination was not on anyone’s mind, search economy had not been introduced, and video was a mere pipe dream.
Last Friday, I penned “Should CBS merge with Yahoo!” I think the deal makes a lot of sense. But regardless of whether that deal materializes or not, I definitely see companies crossing the line and merging with a counterpart from the other “category”.
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