There have been a number of high profile mergers in the recent past and a few...

There have been a number of high profile mergers in the recent past and a few hostile takeovers or attempts. Do some research to find one of the high-profile events, and then provide a detailed analysis of the facts and circumstances surrounding the transaction.

Expert Solution

Answer:- Detailed analysis of one of the hostile merger of AOL and Time Warner as follows:-

When AOL announced it was taking over the much larger and successful Time Warner, it was hailed the deal of the millennium. But the dotcom boom meant the new AOL Time Warner lost over $200bn in value in less than two years.

Case Description:-

The purposes of this case are several, and the potential uses fairly rich. From an accounting perspective, the assignment of a value to the transaction will directly affect the goodwill assigned to the merged firm's financial statements.

From that, students can be given the opportunity to discuss such topics as measurement, earnings management, and efficiency with respect to analysts' capacity to filter through non-cash flow effects.

Interesting questions arise with respect to the adequacy of information about the probability of merger completion. Evidence suggests that analysts assigned a fairly high probability to the chance that the merger would not be completed.

The fairness of this probability allows for speculation as to whether or not information available in the market, including that disseminated by the firm, was adequate to the task of assigning that probability.

Finally, because the case involved two very widely held firms, there are rich opportunities for students to research the wealth of information that exists on this merger. At its highest level, the case is rich enough to be used for Masters of Accounting students and MBA students who have taken an MBA-level corporate finance class.

Upper division accounting and finance students who are familiar with analysis of mergers and with theories of asymmetric information could also benefit from analyzing the case. Case

Synopsis: When AOL and Time Warner announced their proposed merger in January 2000, the securities of both firms experienced significant price adjustments. Initially, prices of both securities rose on the news. When details of the proposal became clear, the security price of Time Warner fell back somewhat, but remained approximately 30% above its pre-announcement selling price.

AOL shares, however, retreated to a price about 15% below its pre-announcement price. Both of these prices were significantly below consensus price targets set by analysts. Of special interest is the relative price level at which the two securities settled soon after the announcement. The merger proposal called for the issuance of a new security representing common ownership in the new firm.

One share of the new security would be issued for each share of AOL, while each share of Time Warner would be exchanged for one and one-half shares of the new security. As weeks passed beyond the announcement date, the ratio of the Time Warner shares to the AOL shares ranged from just less than 1.4:1 to 1.5:1 (rather than settling at and sustaining the 1.5:1 ratio one would expect from the agreement.) This case presents the circumstances surrounding the merger of AOL and Time Warner, including their respective business strategies, markets, financial structures, and price movements during the period leading up to the merger.

ekkarill92 answered 2 years ago

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