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February 08, 2006
Lazard / Icahn Right About AOL
Financial archeologists will still be digging through The Lazard Report when the next ice-age begins, but the upshot is this: Bust Time Warner into four pieces, lever up, and buy back stock. With regard to AOL, at least, this is a sound plan. Not because Icahn and Lazard's platoon of analysts have discovered the secret to rebuilding the company--they haven't--but because AOL's imprisonment within Time Warner is a net negative.
As Lazard revels in pointing out, it didn't have to be this way. The whole point of the AOL-Time Warner merger (aside from distracting investors from focusing on an imminent slowdown at both companies) was to make the conglomerate's various assets work together to form leading broadband music, movie, content and communications services. Instead, Time Warner's offended senior managers exacted their revenge on AOL's condescending senior managers by snickering when AOL hit the wall and then refusing to have anything to do with the company. Even today, Time Warner operates competitive and duplicative broadband services (AOL and Road Runner) and has become an also-ran in music, movies, and other online services that it should have dominated. And although Time Warner management has recently shown some signs of waking up to this--and forcing cooperation--the company's longstanding culture of independent operating divisions seems to hold sway. So cut AOL loose.
Thankfully, The Lazard Report said nothing about an idea Icahn floated a couple of weeks ago: Merging AOL with another second-tier portal. One hopes this unfortunate brainstorm is gone for good.
Posted by Henry Blodget on February 08, 2006 at 08:48 AM | Permalink
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Comments
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Henry,
If there was ever a deal to validate the stupidity of the Wall Street herd it was the original AOL/TW deal. And Steve Case is quite the idiot himself. I have no tolerance for perpetual incompetence. This deal could have actually worked if someone had a strategy and actually executed on it. Instead it was about people getting rich and an executive team with no operational experience.
If AOL would have unbundled their portal from dial service, they had the ability to the the Yahoo! or even Google of today. Continue to offer it to dial cusotmers but offer the entire user experience to any internet user. And by offering exclusive content from the TW stable on that portal, we'd likely all have AOL as our home page right now instead of it being relegated to junk status. Music, news, entertainment, finance, and on and on with many of the most respected brands in content.
I support Icahn on this deal not because he has a great plan but because breaking these pieces apart will reqire them to actually have a busines plan and execute on it to stay alive. TW today is a listless ship. What is their strategy? How are they creating profound synergies with their assets? I'm sure they have a great plan. But, I, as a consumer, don't see squat.
Posted by: B | February 08, 2006 at 11:34 AM
I disagree that Case is an idiot. Indeed, the merger/sale to Time Warner was a brilliant hedge against the ridiculous valuations by comparable internet stocks at the time of the deal. He effectively bought TW's cash machine for his overvalued stock. Not as good as Cuban's yahoo hedge, but hardly stupid.
Posted by: banker | February 10, 2006 at 09:38 AM
Please,
Spare me. I don't want to minimize anyone else's view or be vitriolic but Case fell into a situation and rode a wave and stock price that was almost self sustaining regardless of any approach he took. And if he was so brilliant, what was his strategy AFTER the investment bankers made everyone rich with the acquisition? Is it brilliant to take a bubble stock and buy something with no ability to execute a strategu after that purchase? If you know of a strategy that he was not able to act on for some reason, please enlighten me. There were many bright people at AOL but Case doesn't fit the bill. He was 110% DUD.
Even a simpleton could have created more synergies and value than he did. When the emperor was found to have no clothes, he was easily pushed aside as a member of the dumb and dumber crew. That is one of the biggest botches in modern history. And all done with a stock that was on overdrive NOT because of any great vision Case had but because every company associated with the net was up thousands of percent.
If that weren't enough, in hindsight you are able to critique his strategy at AOL. It was flawed 110% by the 110% DUD. Instead of realizing dial users would quickly dry up and the value of AOL's brand was in a high content internet portal or search engine or both, he continued to keep AOL's brand proprietary to the dial duds. That led to the rise of his successors in Google and Yahoo AT THE EXPENSE of the AOL brand. I'm sorry, you need to cite more facts than Mr. Cuban Cigar for me to give Case any credit at all. Other than that, I enjoyed your post. lol.
Posted by: B | February 10, 2006 at 11:09 AM
thanks admin good post
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Posted by: ugurss | November 02, 2009 at 06:29 AM
Aol is such a bad company. Something will have to change or it is going bankrupt.
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Posted by: jimb12345 | April 20, 2010 at 10:47 PM
That already seems like an oligopoly...I don't think that should be able to happen right now. network company orlando
Posted by: ryan maher | May 18, 2010 at 02:39 PM