AOL Time Warner Case Accounting Coursework Assignment

Name
Instructor
Course
Date
AOL& Time Warner Case
1] Major synergies and value creation
The merger of AOL and Time Warner created a digital media company with services in the entertainment, media, cable, print publishing and internet service provision. The company would leverage on cost reductions through using similar technologies enhancing cross promotion and marketing initiatives. For Time Warner the merger provided an opportunity for cross promotion synergies since the company was better placed to expand in the digital content market. AOL would in turn expand into new market in the mass media and entertainment industry, and the merger would then increase sales revenue, AOL promoted Time Warner’s content and vice versa.
2] Quantifying this premium.
Time Warner shareholders to get 1.5 shares for each held in the new merged company
AOL shareholders were to receive one share for each held
Time Warner was valued at $ 108 a premium over $64.75 the Monday before acquisition
The value of the share rose to $ 90.06 and AOL shares feel from $ 73.75 to $72
Target shareholder’s gain/ premium= Price paid for the target company (PT)-pre-merger value of the target company (VT)
Stock acquisition premium is then ($108.00-$64.75) = $43.25
There were 1,301.5 Time Warner basic shares at March 31 2,000
Premium= 1,301.5 M *$ 43.25= $84,272.13 M
3] Do you think that the additional value created by the deal is sufficient to justify the premium being offered to Time Warner shareholders?
Paying the 150% premium is justifiable for AOL who acquired Time Warner and would boost earnings for the new company. The stock value increased after the acquisition and the expectation that the profit would increase is realistic.
4] AOL’s pre-merger intrinsic value and eVal file
Historical Data For:  AOL-Time Warner  Most...