Global M&A Negotiations

The negotiations between AOL and Time Warner

September 05, 2023 Yadvinder Singh Rana Season 1 Episode 3
Global M&A Negotiations
The negotiations between AOL and Time Warner
Show Notes Transcript

In January 2000, America Online announced the acquisition of Time Warner for 182 billion $ in an all-stock transaction.

In this episode, we'll explore how self-interest and hubris shaped the negotiations between AOL and Time Warner.


Klein, A. (2003). Stealing Time: Steve Case, Jerry Levin, and the Collapse of AOL Time Warner. Simon & Schuster.

Munk, N. (2009). Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner. HarperCollins.

 Audio contributions are provided by:

AOL & Time Warner marriage - reports: 

PandoMonthly: Steve Case on the early days of AOL:  

"The Third Wave" author Steve Case on failed AOL-TimeWarner merger; great idea, poor execution: 

AOL-Time Warner Merger Architect on Mergers, Tech Bubbles and HuffPo: 

AOL Time Warner Levin thank you:

AOL - Time Warner, The Most Destructive Merger In History:

Remembering AOL's acquisition of Time Warner on the merger's 20th anniversary:

Former Time Warner Chief Reveals What He Would Change: 

If you enjoyed this episode, please leave a review and check out our website:

I welcome any suggestions, questions, or comments at

Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing.


In January 2000, America Online announced the acquisition of Time Warner for 182 billion $ in an all-stock transaction.

In this episode, we'll explore the key factors and the critical moments that shaped the negotiations between AOL and Time Warner.

ACT 1 – the perspective of AOL

Virginia based AOL was perceived as being money-driven and unsophisticated by Silicon Valley.

Nevertheless, by the end of the 1990s, America Online emerged as the most powerful online brand. 

The company mission was "To build a global medium as central to people's lives as the telephone or television…." 

To be the Coca-Cola or the McDonald of the online world. 

AOL did a great marketing job and made sure its online service was easy-to-use and affordable.

Even by today's standards, the company's growth was impressive.

At the beginning of 1995, AOL had two million subscribers with a market capitalization of 1.4 billion $.

By the end of 1998, AOL had grown to 19 million subscribers with a market capitalization of 63 billion $.

In 1997 the company used its ever-increasing stock price to buy what was once its biggest rival, CompuServe. 

In 1998 it acquired Netscape. 

The main objective of AOL was to get bigger to protect itself from Microsoft, its largest competitor in online services.

Steve Case, America Online CEO, also wanted to diversify its sources of revenue, understanding that the prospect of adding subscribers would plateau at a certain point. 

Since America Online was worth more than General Motors and Boeing combined, Case knew that AOL's market capitalization was inflated by the Internet tide. 

However, America Online could use its stock to acquire the perfect partner to ease the prospect of slower growth. 

ACT 2 – AOL CEO - Steve Case

Steve Case was born on August 21, 1958, in Honolulu, 

the third of four children of a corporate lawyer and a retired schoolteacher.

An important feature of his youth was the competition with his older brother, Dan. 

Dan was the family star, a straight-A student whose constant success overshadowed the younger brother. 

He graduated from Princeton University and went on to become a Rhodes Scholar and then an investment banker. 

On the other hand, Steve was a B minus student who got into a small Massachusetts college, graduating in political science. 

Case was not a committed student because his full-time campus occupation was to start and promote one business venture after another. 

He was rejected by several MBA programs and landed a job as an assistant brand manager at Procter & Gamble before moving to Pizza Hut. 

Finally, thanks to his brother Dan, he secured a marketing job in Control Video, an online video venture offering online services for Commodore 64 computers.

Case was renowned for his ability to synthesize vast amounts of information into simple concepts. 

Drawn by Toffler's prophetic book "Future Schock," which predicted the rise of the Internet, Case worked extremely hard, often fifteen hours per day. 

It was his persistence that led him to secure Apple as a customer. 

As a result, he constantly climbed the company ladder, and at 33, in 1991, he was promoted to President and CEO of the company now called America Online.

In 1996 Steve Case made the cover of Business Week. 

In 1997 he was featured on the front cover of Time magazine with the title: 

The Web was going to kill it. Microsoft was going to bury it. But America Online keeps on growing."

Steve Case wasn't just the CEO of AOL; he had become a star. 

ACT 3 – The interests of AOL

Steve Case has been contemplating a merger with Time Warner for some time. He saw acquiring a respected old media firm as a way to gain respect and prestige. 

The merger between the two companies also made perfect strategic sense, with Time Warner providing content for the AOL site and AOL providing an Internet foothold for Time Warner.

Furthermore, Steve Case was well aware that sustaining the company's exponential growth required different sources of revenue. 

The company's stock was already overpriced. 

And Time Warner provided the perfect opportunity for revenue and risk diversification through its attractive hard assets, ranging from movies and music to magazines. 

Lastly, Time Warner offered something even more valuable to AOL: cable lines. 

Time Warner was the nation's second-largest cable television operator, with over twelve million subscribers. 

And cable lines could transmit digital data much faster than telephone lines.

Steve Case also had a further interest in merging the two companies: 

He was tired of running the day-by-day operations of America Online. 

As chairman, he could spend more time with his family.

ACT 4 – the perspective of Time Warner 

Time Warner resulted from the 1990 merger between Time Inc., owner of over 100 magazine brands like Time, Sports Illustrated, and Fortune, 

and Warner Communications, which included Warner Bros and HBO. 

By acquiring Turner Broadcasting System in 1997, Time Warner also became a leading provider of broadband and TV services through cable.

Once the world's largest media and entertainment company, in 1999, Time Warner was losing money and facing an overwhelming debt. 

Moreover, the company completely missed the Internet revolution. 

Time Warner represented the media and entertainment champion of the old age and was under extreme pressure from shareholders and Wall Street to develop a new business model.

Several experiments were attempted to move the company away from its bricks-and-mortar world, including developing platforms to stream music and videos. 

However, all efforts to coordinate the company's Internet strategy failed amid power struggles between the division heads. 

The Time Warner organization resembled a feudal society. 

Executives found themselves engaged in internal conflicts, competing for power and influence. 

More time was spent on internal politics than challenging competitors.

ACT 5 – Time Warner CEO - Gerald Levin  

Jerry Levin was born in Philadelphia in 1939 to a Jewish family of Russian and Romanian origins. 

As a young boy, he was a serious A+ student who never got in trouble and displayed great self-discipline and self-control.

He attended the prestigious Haverford College and graduated in 1963, first in his University of Pennsylvania Law School class.

He joined Time Inc. in 1972 as a staff executive of HBO, playing a leading role in making HBO the dominant pay-cable channel nationwide. 

Being the chief maker of the acquisition of Warner Communications, he quickly rose the organizational ladder alongside COO Nick Nicholas.

In 1992, after losing the race for the top role, Levin plotted to depose his rival. 

While Nicholas was skiing on vacation in Vail with his family, Levin acquired the board's support. 

He engineered Nicholas's dismissal, taking over as president and then CEO of Time Warner.

As a CEO, he was described as detached, elusive, and private. He lived a monk's life, waking up every morning at 5 am, running three miles, calling his executives at 6 am, and working until 9 pm.

A turning point in his life occurred in 1997 when one of his children, Jonathan Levin, a 31-year-old high school English teacher, was murdered during a robbery by one of his former students.

The death of his son made him even more isolated and work driven. He slept four hours a night and worked the rest of the day.


ACT 6 – The interests of Time Warner

Levin wanted to leave a lasting legacy in the company.

However, toward the end of 1999, Time Warners's stock price was languishing,

and Levin became increasingly frustrated with the difficulty of implementing a coherent internet strategy for the company. 

From his point of view, Time Warner's executives were too conventional to carry out his visionary plans for the old media firm. 

Some division heads didn't even use email.

The change had to come from outside. 

Time Warner needed to partner with a company that could help the old media firm leap to the Internet. 

ACT 7 – Timeline of the negotiations

In September 1999, Levin and Case met briefly in Paris at the Global Business Dialogue, a media and technology executives meeting. 

Following that, they met again in October at an event sponsored by Fortune magazine in Shanghai.

Levin was the host of the event, highly greeted and respected by the Communist Party leadership.

Formally Case was in China to consider expansion plans for AOL. 

Still, on the long flight to Shanghai, he studied every detail of the Time Warner deal book prepared for him by his bankers, which further reinforced his decision to pursue the media company.

Nevertheless, he wanted to know Levin better and understand if the two could work together.

Two weeks later, Case called Levin and, without wasting time and small talk, proposed a merger of equals through a stock deal. Levin wasn't expecting it.

Within seconds, Case added: "Jerry, I would like you to be the CEO of the new combined company."

After months of preparation, Case and his advisors knew that Time Warner wouldn't merge with AOL unless Levin was appointed CEO, and the deal was perceived as a merger of equals.

It was a proposal that greatly appealed to Levin. And it was the perfect solution to Time Warner's lack of internet strategy. 

Additionally, he admired America Online and regarded not only the executives who ran the company but especially its board of directors, which included former general Colin Powell.

Nevertheless, Levin was careful. America Online's stock price was so high that a takeover attempt was possible.

On November 1, the two CEOs met for dinner. As a precaution against being seen together, Levin booked a suite at Manhattan's Rihga Royal Hotel and ordered room service. 

Despite the age gap (Levin was almost 20 years older than Case), the two men connected while drinking fine red wine. 

Case was impressed by Levin's vast knowledge and the fact that international leaders treated him as an equal. 

Levin was captivated by Case's intelligence, creativity, and passion. 

At the dinner, the two CEOs also agreed on the vision for the merger, which would eventually be conveyed to journalists and analysts: "the world's first fully integrated Internet-powered media and communications company."

During the following days, governance and management issues were quickly sorted out. 

The board of directors would be split equally, with eight AOL and eight Time Warner members.

Case would be chairman, Levin would be CEO, and the position of chief operating officer would be shared between the COOs of the two companies. 

The three top executives of both companies met on November 16 to define the rationale behind the merger and identify potential synergies. 

During the meeting, Ken Novak, AOL's chief legal and lead negotiator in all its acquisitions, and Richard Bressler, Time Warner CFO, immediately realized that combining the two companies would not be as straightforward as Levin and Case thought. 

In contrast to the highly centralized AOL, Time Warner consisted of a number of independent units. 

Regarding the name, it was Levin who made the final call: he didn't like the sound of Time Warner AOL, but AOL Time Warner seemed great. 

Levin also decided that the stock symbol of the new company would be AOL.

It was, however, very difficult to reach an agreement on the most contentious issue, ownership.

Basically, what did "merger of equals" mean in practice? 

America Online was valued almost twice as much as Time Warner, implying that AOL would account for 65% of the merged entity. 

Nevertheless, Time Warner had five times the revenues and employees compared to AOL. 

Based on these numbers, Time Warner should have owned almost 85% of the combined company. 

On November 17, Levin called Case telling him that he would never settle for less than half of the new combined company. Case was very disappointed. 

He knew his company's stock was inflated. But how could he persuade AOL shareholders that their stock was worth the same as Time Warner's? 

The deal was off, at least for the moment.

By the beginning of December, America Online's stock price was flying high, almost 50% more than when the two CEOs met in Shanghai at the beginning of October.

In the meantime, Time Warner's stock remained flat, and the company's latest internet project,, turned out to be a complete failure. 

As a result, Levin was under an incredible amount of pressure. 

Combining with America Online was the only way he could lead Time Warner into the new millennium and fulfill his legacy.

On December 8, Case instructed Kim Novack to make the deal work somehow. 

Two days later, the two companies entered a confidentiality agreement, but the negotiations immediately reached an impasse.

Levin demanded a real merger of equals based on a 50/50 deal. 

On the other side, Case lowered his demands, offering a 60/40 split. 

Essentially, despite the recommendation of his advisors, Case was agreeing to pay a relevant premium. 

The talks revolved around a second key financial issue: what if AOL's stock price declined before deal approval? 

All-stock mergers are often complemented by a collar, a provision designed to reduce the uncertainty of the payoff. 

As expected, Time Warner sought a collar to protect itself against possible fluctuations in AOL's stock price. Clearly, America Online rejected a collar.

In the end, Levin gave up on the collar issue.

On December 23, Novak and Bressler met again in Boston, but the differences remained. 

AOL was immovable on a sixty-forty split, while Time Warner demanded a fifty-fifty division. 

They agreed to postpone the conversation after the Christmas holidays. 

Levin spent his holidays in Vermont. He knew that Time Warner's fourth-quarter results didn't look great, and that the company stock was suffering. 

At the same time, AOL was named by the Wall Street Journal as the "Biggest Gainer of the '90s."

Without soliciting the opinion of any Time Warner executive, not even Bressler, Levin decided that to save Time Warner and leave a meaningful legacy, he had to close the deal.

He would compromise and offer AOL 55% of the new company. 

On January 5, Bressler and Novack spoke by phone, organizing a dinner for the following day at Steve Case's home in McLean, Virginia.

Before dessert was served, Case and Levin walked away from the table. 

When they came back, they had a deal: AOL would own 55 percent, and Time Warner 45 percent of the merged company, meaning that AOL was paying a 70% premium.

On Friday, January 8,, Levin announced the merger to a selected group of Time Warner executives. 

The room was filled with two parallel reactions. The first was: "Why you didn't keep us in the loop?" The second was, "Did you really sell Time Warner to AOL?."

At the time, Levin couldn't have known, but many Time Warner executives were committed to sabotaging the deal the moment it was publicly announced.

The reaction in AOL was no different. Executives didn't get the 71% premium paid to acquire Time Warner. 

But most importantly, they didn't understand the rationale behind the deal: why was AOL acquiring an old and stagnant company?

During the meeting, Case explained that the company's fantastic journey couldn't last, and AOL's stock price would eventually fall. 

The company needed to use its flying stock to buy tangible assets.

Levin and Case intended to close the deal over the weekend and announce it on Monday January 10 to avoid any news of the merger leaking somehow.

Three days. 

It was impossible to conduct proper due diligence in such a short period of time. As one of the bankers involved in the deal stated: "If you do a deal over a weekend, you have to take shortcuts."

Despite any reservations, Morgan Stanley and Salomon Smith Barney, the two banks acting for Time Warner and AOL, were highly motivated to close the deal. 

Massive fees were on the line. 

It was necessary for the bankers to confirm that extensive research and rational analysis had been performed. 

Their responsibility was only to convince the boards and shareholders to vote in favor of the proposed agreement. 

In the end, what happened afterward was none of their business.

A last impasse took place on Sunday, January 9, a few hours before the AOL and Time Warner board meetings. 

What was Steve Case's job description? 

In Time Warner files, Case was described as a non-executive chairman. 

When Novack read the document, he immediately called Case. Enraged, he threatened to cancel the deal. 

Sure, Case wanted to spend more time with his family and didn't want to report to work every day. 

But he intended to play an active role in the new company. 

Levin, however, had no intention of sharing power. 

The two CEOs spoke on the phone while the two boards were assembled. 

The deal was on the line, and Case would not back down. 

Meanwhile, Levin was at risk of losing everything.

Eventually, it was agreed that Case would have specific areas of authority in the new company, including global public policy, technology, investments, philanthropy, and innovations.

Moreover, few top executives would report directly to him, bypassing Levin.

ACT 8 – Reactions to the Merger announcement

Upon its announcement, most analysts called the AOL Time Warner merger the deal of the century, a futuristic megadeal that offered the potential of unlocking endless synergies. 

But there were skeptics. One of the most outspoken critics of the deal was Carol Loomis, editor-at-large of Fortune (a Time Warner publication). 

Loomis took a close look at the numbers, concluding that the deal could never work as promised.

The new combined company value was over 300 times the joint earnings once non-recurring gains were deducted. 

Moreover, based on Case and Levin's projections, the long-term annual return to shareholders would be only 5.8%, lower than that of US government bonds.

ACT 9 – The outcome of the merger

Most top roles in the new company were assigned to AOL executives. 

While Levin abandoned his Time Warner crew, Case cared for his own. 

Furthermore, Time Warner executives resented the considerable wealth of AOL managers based on their stock options.

The new company was owned 55 percent by AOL shareholders. 

Called AOL Time Warner and run by AOL executives.

It was an acquisition concealed as a merger of equals. 

There was no doubt that America Online had bought Time Warner.

After the AOL Time Warner deal was announced, the dot com bubble burst and the stock market crashed.

It became clear Levin had made a mistake by not putting a collar on the deal, which would have protected Time Warner shareholders from AOL's fall in stock price.

By the time regulators approved the AOL Time Warner deal on January 11, 2001, executives at the company knew the targets promised by Levin and Case were out of reach. 

There was no way the company's cash flow could be increased by 30 percent, and revenues increased by 10% in a single year.

Especially, when Time Warner division heads had no intention of working together with AOL. 

In the end, the synergies between the two companies never materialized.

In early 2009 Time Warner decided to spin off AOL as an independent company, officially ending the merger.

Jeff Bewkes, the chairman and CEO of Time Warner between 2008 and 2018, described the America Online Time Warner merger as "the biggest mistake in corporate history."

I hope to see you next month when we'll explore another M&A negotiation. 

If you enjoyed this episode and would like to help support the podcast, please share it with others and visit our website,

The Global M&A negotiations podcast is hosted by me, Yadvinder Singh Rana. 

Original music by Henrik Juul Jensen.