Mergers and acquisitions (M&A) is a big part of the corporate finance world. Everyday Wall Street investment bankers arrange M&A transactions bringing separate companies together to form larger ones often aiming to increase their long term profitability, achieve greater efficiency, accelerate growth process, expand the acquirer’s business in a faster period of time, vertically integrate, and other possible motives. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. However close to seventy-five percent of all M&A deals fail in their aim of adding value to the company. In the year 2000, the nation’s top Internet service provider America Online Inc. (AOL) announced to acquire the world’s top media corporation Time Warner Inc. in the largest deal in history worth $182 billion in stock and debt. With dominating positions in the music, publishing, news, entertainment, cable and Internet industries, the combined company, called AOL Time Warner was aiming to boast unrivaled assets among other media and online companies. While every organization is different and faces multiple challenges, AOL Time Warner did not prevail in the years to come, and plummeted the total value of its stock from $226 billion to $20 billion in an unsuccessful merger.
AOL executives sought to diversify the assets of the company beyond the Internet and online sectors. In addition, executives at AOL were quite concerned about the prospect of increased competition with Microsoft and sought to enlarge the company as a defensive measure. They also believed that the integration of AOL's Internet distribution and Time Warner's content would create a tremendous amount of value for both sides of the company. Time Warner executives ...