Evaluation of Zillow - Trulia Merger
Sydney Business School
University of Wollongong
Participants:
Devika Chandramohan
Kaustav Chatterjee
Sebastian Isbanner
Table of Contents
1 Introduction ............................................................................................................... 3
2 Which company is getting the better deal and why?................................................. 4
3 Structure of the deal .................................................................................................. 6
4 Future on a standalone basis...................................................................................... 9
5 Assumptions about future........................................................................................ 12
6 Trade recommendations .......................................................................................... 14
7 Conclusion ............................................................................................................... 17
8 References: .............................................................................................................. 18
9 Appendix ................................................................................................................. 23
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1
Introduction
“2 + 2 = 5”, right? The typical rationale representing synergy, as the whole is worth more than the
sum of the parts. Online real estate market leader Zillow expects substantial benefits from its $3.5
billion acquisition of its major competitor Trulia. In the past, both companies have invested
significantly into R&D in order to differentiate themselves from each other. Now, due to this
merger, it is anticipated to address a much larger customer base and nurture from a wide range of
benefits while keeping both businesses operating separately.
Based on a set of questions and key variables, this report pursues to evaluate Zillow’s acquisition of
Trulia. At first, it will be examined which company is getting the better deal and why. Secondly, the
structure of the deal and its impact on both shareholders and customers are analysed. In case the deal
fails due to a FTC investigation, a potential future outlook for each company on a standalone basis is
provided in the next section. Based on the companies’ present combined market valuations,
assumptions about their future to buy stock in the combined company are given. Ultimately, this
report ends with examining if any trades can be recommended around this transaction.
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2
Which company is getting the better deal and why?
On 28 July 2014, Zillow announced a $3.5 billion deal to acquire Trulia (67% of shares belonging to
Zillow; 33% to Trulia)1, with the merger representing 61% of the online real estate advertising
market, and laid the foundation for a strong competitive advantage for Zillow. After a history of
several acquisitions, this $3.5 billion deal represents by far the biggest acquisition by Zillow. The
deal is expected to accelerate innovation, broaden distribution, enhance value and ROI for
advertisers, provide greater access to Free Real Estate Market Data, and provide annual corporate
cost savings of around $100 million from 2016 (Securities and Exchange Commission 2014a,
2014b).
As both company’s financials suggest, intense R&D investments in the past in order to differentiate
itself from each other will lead to strong synergetic effects. Thus, both companies should be able to
capitalize from the fact that these differentiation efforts are now combined under the umbrella of one
company. Especially, the combined expertise gained from these differentiation efforts can create a
long-term competitive advantage as innovation efforts could be accelerated.
However, it is difficult to assess which company is better off since different scenarios as well as the
future outlook of the industry needs to be taken into account. On the one hand, the deal itself could
be considered to be in favour of Zillow, as it has acquired its major competitor, gained a larger
market share and received the majority of shares and therefore, owns Trulia. Zillow can exert
influence on Trulia’s entire business and only two Trulia directors (including Trulia’s CEO) will be
assigned to the board of directors. Also, Zillow can take advantage from the recently acquired
software provider “Market Leader” by Trulia, which adds another feature to their portfolio and
1
Although Trulia currently retains its business model, and trades separately from Zillow
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strengthens its competitive advantage. From Trulia’s perspective, Trulia has given up its challenger
position in the market, its market share and ultimately, its autonomy. Its expertise and gained
competitive advantages from the past have become transparent to Zillow.
Notwithstanding, on the other hand, this deal could also represent a “do-or-die” deal for Trulia and
that it is better off to merge with Zillow. Trulia has generated increasing negative operating income
from 2010 to 2013 and its “Market Leader” acquisition in 2013 has enlarged its long-term debt
significantly. Resulting from that, a negative net operating cash flow in 2013 was posted. Given
these circumstances, Trulia might be better off to merge with Zillow as this means to ultimately
survive in the marketplace. This assumption may be corroborated by the recent News Corp.
acquisition of Move, Inc. that will amplify the competition in the market. Although the deal itself is
not necessarily in favour of Trulia and Trulia had to give up its autonomy, one may conclude that
yet, Trulia is better off.
In summary, it is difficult to predict which company is better off with the deal as the future remains
uncertain. Both companies should be able to take advantage from their similar business models,
their larger customer base and synergetic effects, especially in terms of innovation to remain
competitive in the long run. However, it is with both companies in how far and when these synergies
will turn out into positive effects as an acquisition poses high administrative and structural
challenges. In particular, merging both companies’ cultures and creating cohesiveness among former
competitors will be key to its success.
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3
Structure of the deal
According to Securities and Exchange Commission (2014a, p. 2), Trulia’s shareholders receive
0.444 shares of Zillow’s Class A Common Stock and the value of the deal denotes a premium of
25% to Trulia’s closing price on July 25, 2014. Current Class A and Class B Common Stock holders
of Zillow receives one comparable share of the combined company at closing. Trulia would own
approximately 33% and Zillow would own approximately 67%, of the combined company
(Securities and Exchange Commission 2014a, p. 2). The deal also includes Zillow having the option
of pulling out by paying a termination fee if the FTC proposes certain constraints on their business
such as a divestment of assets. Should this deal come to pass, the structure of the deal does make
sense for each company if the expected benefits can be realised.
In the following section the impact of the deal from the perspective of shareholders and customers is
examined. Table 1 summarizes the analysis:
Stakeholder
Zillow (Acquiring Entity)
Trulia (Target Entity)
Perspective
Shareholder
Customer
•
Dilution of ownership
•
Combined debt obligation
•
Long term benefits
•
25% premium
•
Negotiating power
•
Negotiating power
•
Lack of choice
•
Lack of choice
•
Benefit from synergy
•
Benefit from synergy
Table 1: Impact on Shareholders and Customers
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When there is a stock-for-stock acquisition, the parent company’s equity is affected in proportion to
the shares issued (Balasubramaniam 2014). As a consequence of the stock-only deal and issuing
share in exchange of acquiring Trulia, the dilution of ownership represents a negative impact on
Zillow’s shareholders as the value of shares may decline. This can be accompanied by a diluted
EPS. Also, as Zillow is paying a premium of 25% to acquire Trulia, this could result in increased
dilution of its share value (The Motley Fool 2006). On the other hand, Zillow’s shareholders could
benefit in the long term due to the expected cost savings and larger market share, the combined
company is expecting to achieve.
Trulia’s shareholders would benefit from the annualized cost savings, which are expected to be
realized from the combined expertise of Zillow and Trulia. Since Trulia has been experiencing a
significant long-term debt after their acquisition of “Market Leader”, this deal would make them
better off (cf. Appendix 1). Apart from the synergistic advantages, Trulia would benefit all the more
from the deal, since the deal comprises a 25% premium on Trulia’s share (Securities and Exchange
Commission 2014a, p. 2). As to be seen Figure 1 Trulia is currently experiencing an increase in
their share price, and eventually market capitalization (cf. Appendix 2).
From the perspective of customers (primarily real estate agents), the deal could result in reduction of
negotiating power on the advertising price (Bushery 2014). Since the consolidation of Zillow and
Trulia is expected to enlarge and strengthen their leadership position in the online real estate market,
due to which customers might have to face an increased pricing power from the combined entity
(Levy 2014). Furthermore, due to the combination of two major players in the market, customers
might experience a lack of choice. For example, if a real estate agent was highly in favour of
Trulia’s business model and particularly chose to not do business with Zillow, might be alienated by
their merger. As a result, this customer might feel the urge to walk away from the combined
company.
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Consumers, such as vendors and purchasers might have both positive and negative effects from the
deal. On the one hand, they are expected to benefit from the combined company through broadened
access to real estate market data and more accurate forecasts (Securities and Exchange Commission
2014a, p. 2). On the other hand, the merger might negatively affect the consumers since the real
estate agents could compensate their increased fees by passing them on to the buyers (Davidson
2014a).
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4
Future on a standalone basis
There is a likelihood of the Zillow-Trulia merger deal to fail on account of Federal Trade
Commission’s (FTC) anti-trust laws (Kosman 2014). In other words, FTC could terminate the deal
if they feel that the deal reduces competition in the marketplace thus exposing customers to risks of
higher prices or reduced choices.
Zillow is primarily responsible to obtain clearances required to close the deal (Solomon 2014).
There is a high probability of the Zillow-Trulia deal to get the clearance from FTC because FTC
views online real-estate advertisements not in isolation but as part of the entire suite of advertising
media. The combined revenues of Zillow and Trulia in 2013 was $340.7 million which is around 4%
of the estimated $12 billion spent in average on real-estate advertising in the USA every year
(Zillow 2014c).
If the transactions fail to close, Trulia could lose market share and lose its position as the primary
competitor in the market. This is because, even if the deal fails to close, the conditions mentioned in
the deal would be in effect till January 28, 2016, which is a fairly long time range for online-based
businesses. In that time frame, Trulia is limited in its business operations by what it can do without
Zillow’s approval. For instance, Trulia can make no acquisitions, no capital expenditures or borrow
money (Securities and Exchange Commission 2014c, p. 37). Trulia also cannot employ anyone by
paying a salary of over $275,000, except to fill an empty position. These restrictions could severely
limit Trulia’s ability to maintain its competitive advantage and if it has to comeback as an
independent company after 18 months, it could find it very hard to recover and regain its market
position.
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For Zillow, failure to close the deal would mean a direct payment of $150 million of termination fee
to Trulia (Securities and Exchange Commission 2014c, p. 54). Failure to close the merger deal
would also mean that the investments made by Zillow to integrate the Trulia into itself will have to
be written off as sunk costs. The other financial impact could be that Zillow’s shareholders who
have already paid a premium to acquire Trulia with a 25% premium on share prices would feel that
their wealth has been depleted. Apart from the financial impacts, if the merger fails, Zillow might
struggle to compete with Move Inc., another company operating in the online real estate domain.
This is because Move Inc. has recently been acquired by News Corp of Australia (Davidson 2014b),
an acquisition that promises to strengthen Move’s position in the coming future. Move’s USP is its
agreement with over 800 MLS’s (Multiple Listings Services) resulting in more accurate listings than
either Zillow or Trulia (Davidson 2014b). A strong financial backbone and focus on data accuracy
could make Move dethrone Zillow from the pinnacle position in online real estate.
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5
Assumptions about future
Based on the combined market value of approximately $5.9 billion, as of 24 October 2014
(NASDAQ 2014a), the following key factors have to be taken into consideration in order to buy
stock in the combined company: micro- and macro environment, market and industry. Due to the
limited framework of this report, please find a detailed report on this in Appendix 4.
Microeconomically, the combined companies are subject to a wide range of risks that can have
significant impact on their business, operating results and financial health resulting in the fact that
prospects can be materially and adversely affected (Trulia 2014; Zillow 2014a). As the nature of
both businesses is equal, the combined company risk profile is the same. This means, that these
companies, due to their horizontal integration (Peirson et al. 2012) are not able to mitigate and offset
each other’s risk exposure.
Macroeconomically, based on the PWC report, the real estate industry seems to have a positive
outlook for 2015 and 2016. Executive compensation schemes and a history of acquisitions by Zillow
may lead to volatile share price movements. Thus, based on the given key factors and assumptions,
the combined company could face a positive and solid future.
Based on the combined market value, it may be possible that the market is still adjusting to the deal
as the share price of both companies show similar incremental decreasing patterns. As to be seen in
Figure 2, the post-announcement share price development resulted in a steady but smooth decline
for Trulia, whereas Zillow’s price adjustment takes a steeper drop.
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As stated in Zillow’s quarterly report (Zillow 2014b) the two companies’ combined revenue
currently represents less than 4 percent of the estimated $12 billion that real estate professionals
spend on marketing their services to consumers each year. Following from that, a strong growth
potential exists for market participants.
Both Zillow and Trulia have implemented director’s share-based compensation schemes. Under
Zillow, this compensation plan is called “2011 Plan” and among others, includes equity awards and
incentive stock options to employees, directors et cetera (Zillow 2014b). Assuming that the overall
corporate objective is shareholder wealth maximisation, the combined company’s stakeholders such
as directors, the executive management and other employees could be encouraged to undertake
certain actions to influence the stock price. In this respect, these actions might not be in alignment
with the long-term strategy and opposed to that, focus short-term earnings (Windsor et al. 2010).
Thus, a compensation scheme that attempts to encourage certain employee behaviour according to
stock incentives can result in share price volatility, as provision and bonus payments are dependent
on the extent of a potential deviation.
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Trade recommendations
6
In order to recommend trades around this transaction, some scenarios have been analysed. An
example of successful merger in the real estate industry was the acquisition of ZipRealty by
Realogy. Details on this acquisition are in Appendix 5. If Zillow-Trulia merger follows a similar
trend, shareholders would be better off by buying or holding on to Zillow’s shares.
An example of a failed merger is the merger between America Online and Time Warner in 2000
(Arango 2010). Details on this merger are in Appendix 5. There are similarities between this deal
and the Zillow-Trulia deal. These are:

The management of the new company would have more members from Zillow. The new
Board has only 2 members from Trulia.

Zillow would own two-thirds of the combined company.

Lack of synergy could be a concern. Possible structural and cultural integration issues.
If the Zillow-Trulia deal does not work out due to some unforeseen circumstances, the shareholders
could lose heavily. In that case, it would be advised to sell Zillow’s shares.
The analyses of Zillow’s past mergers (cf. Figure 3) show that, since 2011, Zillow has acquired
several companies. All these acquisitions show a common trend. Immediately after the acquisition,
there is a temporary drop in Zillow’s share price. However, in the long term, Zillow’s share prices
picked up and Zillow shareholders could make profits over the long run (Yahoo Finance 2014g).
Based on this scenario, it can be suggested that the shareholders should hold on to their shares.
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Figure 3: Source: Adapted from Yahoo Finance 2014a
In order to consider other factors, horizontal mergers often do not result in higher revenues for the
merged entity. On the contrary, sometimes the revenue of the new entity is less than the sum of
individual firms’ revenue before merger. In the classic Cournot merger paradox (Salant, Switzer &
Reynolds 1983) the merging parties are often worse off after the merger while outsiders
(competitors/rivals) are better off.
There are two main reasons for which the Zillow-Trulia merger could actually reduce revenue and
increase risks. First of all, the merger could reduce the differentiation capabilities of the individual
firms. Customers who liked some feature of Trulia over Zillow may walk away now that Zillow and
Trulia have merged. Secondly, since both the companies operate in the same macroeconomic
environment, they are exposed to same risks.
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So, if political or economic change reduces Zillow’s revenues, chances are that Trulia’s revenue
would also reduce since they operate in the same environment. None of the companies compensate
for each other’s limitations in the macro-environment.
A closer look at Zillow’s executives and manager’s actions with Zillow’s shares show an unusual
trend. According to data provided by Thomson Financial, these insiders have sold nearly 1.15
million shares over the past six months. For example, Zillow’s CEO Spencer Rascoff, sold 10,000
shares for $1 million on October 14 (Nichols 2014). This sell of shares by Rascoff and other
executives could suggest that Zillow’s insiders feel that the share price is be too high. This trend
suggests that the price of Zillow’s shares could be uncertain in future and shareholders should sell
the shares and book profits as soon as they can.
To conclude, it can be said that it is too early and too uncertain to suggest any trades around the
Zillow-Trulia merger. The examples of past mergers show that it would be prudent to wait for at
least a year before making any trades around this transaction.
The selling of shares by Zillow’s executives suggest that the ordinary shareholders should follow
suite but analysis of Zillow’s previous mergers suggest that Zillow’s share prices increase over the
long run after a merger.
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7
Conclusion
The purpose of this paper was to review and analyse Zillow’s acquisition of Trulia. The analysis
undertaken was based on a set of questions and key variables.
Although Zillow’s merger history demonstrates a positive share price development the main results
identified are that it might still be too early and too uncertain to suggest any trades around the
Zillow-Trulia merger. Executive share-based incentives and a history of acquisitions by Zillow may
lead to further volatile share price movements. Also, in addition to the online real estate market’s
fast-moving nature there is still a growing concern of a real estate bubble. However, the real estate
industry itself seems to have a positive outlook for 2015 and 2016 as both labour force growth and
GDP are expected to increase. Due to the stock-only deal a dilution of ownership represents a
negative impact on Zillow’s shareholders as the value of shares could decline. As a result, this can
be accompanied by a diluted EPS. If the merger deal fails to close, Trulia could lose market share
and lose its position as the primary competitor in the market as it has given up its competitive
advantage and expertise to its major competitor. Apart from the financial impacts such as the
termination fee and the 25% premium paid, Zillow will face Move, Inc. as a serious competitor on a
standalone basis. The combined company should be able to capitalize from its larger customer base
and synergetic effects, especially in terms of innovation to remain competitive in the long run.
However, it is with both companies in how far and when these synergies will turn out into positive
effects. Merging both companies’ cultures and creating cohesiveness will be key to its success.
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8
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9
Appendix
Appendix 1: Trulia balance sheet for four quarters
Quarter:
Quarter Ending:
Current Assets
Cash and Cash Equivalents
Short-Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Long-Term Assets
Long-Term Investments
Fixed Assets
Goodwill
Intangible Assets
Other Assets
Deferred Asset Charges
Total Assets
Current Liabilities
Accounts Payable
Short-Term Debt / Current Portion of Long-Term
Debt
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Other Liabilities
Deferred Liability Charges
Misc. Stocks
Minority Interest
Total Liabilities
Stock Holders Equity
Common Stocks
Capital Surplus
Retained Earnings
Treasury Stock
Other Equity
Total Equity
Total Liabilities & Equity
2nd
6/30/2014
1st
3/31/2014
4th
12/31/2013
3rd
9/30/2013
$214,909
$0
$14,541
$0
$9,238
$238,688
$220,755
$0
$11,230
$0
$8,190
$240,175
$225,597
$0
$11,697
$0
$12,272
$249,566
$43,417
$0
$13,679
$0
$5,853
$62,949
$0
$30,155
$255,904
$110,221
$14,639
$0
$649,607
$0
$25,999
$255,904
$114,073
$14,842
$0
$650,993
$0
$22,289
$255,904
$117,888
$9,762
$0
$655,409
$0
$12,524
$255,904
$121,699
$2,507
$0
$455,583
$25,704
$21,431
$25,142
$22,016
$21
$11,117
$36,842
$230,075
$3,900
$5,752
$0
$0
$276,569
$28
$11,886
$33,345
$230,080
$3,439
$5,125
$0
$0
$271,989
$51
$11,037
$36,230
$230,084
$3,268
$4,751
$0
$0
$274,333
$3,748
$12,690
$38,454
$4,269
$1,551
$0
$0
$0
$44,274
$0
$470,936
($97,898)
$0
$0
$373,038
$649,607
$0
$459,039
($80,035)
$0
$0
$379,004
$650,993
$0
$445,960
($64,884)
$0
$0
$381,076
$655,409
$0
$465,047
($53,738)
$0
$0
$411,309
$455,583
Table 2: Source: NASDAQ 2014b
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Appendix 2: Trulia - Share price movements
70
60
50
40
30
20
10
0
Figure 1: Source: Adapted from Yahoo Finance 2014b
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Appendix 3: The stock price patterns of Realogy & ZipRealty
Stock price patterns of Realogy
10/20/14
10/13/14
10/6/14
9/29/14
9/22/14
9/15/14
9/8/14
9/1/14
8/25/14
8/18/14
8/11/14
8/4/14
7/28/14
7/21/14
7/14/14
45
40
35
30
25
20
15
10
5
0
Figure 4: Source: Adapted from Yahoo Finance 2014c
Stock price patterns of ZipRealty
8
7
6
5
4
3
2
1
10/20/14
10/13/14
10/6/14
9/29/14
9/22/14
9/15/14
9/8/14
9/1/14
8/25/14
8/18/14
8/11/14
8/4/14
7/28/14
7/21/14
7/14/14
0
Figure 5: Source: Adapted from Yahoo Finance 2014d
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Appendix 4: Detailed analysis of future assumptions
Based on the combined market value of approximately $5.9 billion, as of 24 October 2014
(NASDAQ 2014a), the following key factors have to be taken into consideration in order to buy
stock in the combined company: micro- and macro environment, market and industry.
Microeconomically, the combined companies are subject to a wide range of risks that can have
significant impact on their business, operating results and financial health resulting in the fact that
prospects can be materially and adversely affected (Trulia 2014; Zillow 2014a). As the nature of
both businesses is equal, the combined company risk profile is the same. Consequently, due to this
prevailing condition, one has to take into account that in case of uncertain events happening, either
positive or negative, both company’s share prices move into the same direction (cf. Figure 2). This
means, that these companies, due to their horizontal integration (Peirson et al. 2012) are not able to
mitigate and offset each other’s risk exposure.
Also, share price volatility patterns are paramount when making assumptions about the future
market value of both companies and buying stock, particularly prior and post-merger. As to be seen
in Figure 2, there is a strong resemblance in both company’s share price development. Even though
Zillow could realize a stronger share price growth since the end of year 2012, both companies
significantly increased their share price prior to the announcement. The decline in the months from
May to beginning of June is depicted in the Case-Shiller index as home prices decreased roughly at
0.3% (Munarriz 2014).
Indicative of insider trading, one week before the merger announcement rumours about the potential
became public and the share price began to rise (Chowdhry 2014). This increase in share price has
amplified after the official merger announcement on 28 July 2014 and a salient spike can be
observed.
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Share price development comparison
Zillow
Trulia
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$-
Figure 2: Source: Adapted from NASDAQ 2014a
In order to make assumptions about the future stock price, studies about long-term post-merger
performance of combined companies have to be considered. For example, Agarwal et al. (1992)
have examined that combined companies face a statistically significant loss of approximately 10%
in a five-year post-merger period. Likewise, Lahey and Conn (1990) investigate that after three
years of a merger, the cumulative abnormal results decrease to -10.2%. This is corroborated by a
study of Agarwal and Jaffe (2000), concluding that long-term post-merger stock performance is
significantly negative.
Macroeconomically, as the Price-Waterhouse-Coopers (PWC) report on emerging real estate trends
for 2015 demonstrates, there is still a growing concern of a real estate bubble (PWC 2014). They
argue, that the positive industry outlook and optimism can result in excessive optimism, which could
lead to reckless behaviour. However, PWC (2014) claims that the real estate industry seems to have
adapted some self-regulation and self-correction. The 2015 industry outlook is positive, considering
the “once-burned, twice-shy” experience. As the Blue Chip Economist forecast ascertains, the
positive industry outlook is strengthened by a above-trend gross domestic product (GDP) growth in
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late 2014 and through 2015 (PWC 2014). Moreover, prospected labour force growth in the next
three years, a drop in the unemployment rate to 5.5 % and Consumer Price Index (CPI) prediction
above 2% demonstrate a positive future industry outlook.
The market potential is contributing to making assumptions about the future of the combined
company. As stated in Zillow’s quarterly report (Zillow 2014b) the two companies’ combined
revenue currently represents less than 4 percent of the estimated $12 billion that real estate
professionals spend on marketing their services to consumers each year. Following from that, a
strong growth potential exists for market participants. This can be underpinned by the fact that the
Case-Shiller index has shown a steady upward trend from 2012, apart from a dip between May and
June 2014 (S&P Dow Jones Indices 2014).
Both Zillow and Trulia have implemented director’s share-based compensation schemes. Under
Zillow, this compensation plan is called “2011 Plan” and among others, includes equity awards and
incentive stock options to employees, directors et cetera (Zillow 2014b). Assuming that the overall
corporate objective is shareholder wealth maximisation, the combined company’s stakeholders such
as directors, the executive management and other employees could be encouraged to undertake
certain actions to influence the stock price. In this respect, these actions might not be in alignment
with the long-term strategy and opposed to that, focus short-term earnings (Windsor et al. 2010).
Thus, a compensation scheme that attempts to encourage certain employee behaviour according to
stock incentives can result in share price volatility, as provision and bonus payments are dependent
on the extent of a potential deviation.
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Appendix 5: Merger and Acquisition Scenarios
1. Realogy acquisition of ZipRealty
The acquisition was announced on July 15, 2004 (Madison & Emeryville 2014). On the day of the
announcement, Realogy’s share price was $37.29. A year later, Realogy shares were worth around
$40.76 (Yahoo Finance 2014f). More spectacular was the rise in ZipRealty’s stock prices. While
ZipRealty’s shares were priced at $3.02 on July 15, 2004, their prices had more than doubled a year
later. They were priced $6.74 on date of deal completion (Yahoo Finance 2014e). The stock price
patterns are shown in Appendix 3.
2. Merger between America Online (AOL) and Time Warner
The merger was similar to the Zillow-Trulia merger because it was an attempt to consolidate the
market (media and internet). It was also a stock-only deal in which AOL acquired Time Warner’s
shares and their debt. The value of the deal was $350 billion. According to the deal, AOL paid $183
billion in stock and acquired $17 in debt of Time Warner. AOL was to own 55% of the company.
However, the deal was unsuccessful over the long run because – lack of synergy between the two
organizations, structure of management team that was heavily tilted in favour of AOL and lack of
trust.
The AOL-Time Warner deal was broken in 2009. Time Warner’s stock price, which was close to
$250 in January 2000, was around $25 in May 2009. AOL was valued at $161 billion in January
2000 but was valued at $4 billion in 2009.
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