# Case 3.3 the aol acquisition of time warner (twx)

Case 3.3     THE AOL ACQUISITION OF TIME WARNER (TWX)

C3.3.1 Merger announcement date: January 7, 2000

Stand-Alone Firms

Share Price             Number of Shares (in billions)              Market CapPremerger (in billions)

AOL                   72.88               ×                  2.6                                     =               \$189.5

TWX                  64.75               ×                  1.4                                     =                   90.7

Total                                                                                                         =               \$280.2

Combined AOL-TWX

New AOL shares for TWX stockholders = Exchange Ratio × TWX shares

= 1.5                     × 1.4 billion

= 2.1 billion

Share Price                Number of Shares (in billions)            Market Cap Post-Merger

(In billions)

“TWX”        \$72.88                ×                     2.1                                   =            \$153.1

AOL             \$72.88                ×                    2.6                                    =            \$189.5

Total                                                              4.7                                    =            \$342.6

What was the premium paid by AOL for TWX?

C3.3.2 The value of AOL on September 10, 2002, was \$13.36, and the number of shares outstanding was 4.45 billion. What was the decline in value of AOL from its immediate post-merger market capitalization?

C3.3.3 Explain the pro forma accounting adjustments (except for the miscellaneous items) as an example of purchase accounting.

Debit (in billions)

TWX shareholders’ book equity                                                         \$ 10.0

Goodwill and other intangibles                                                             174.0

Total pro forma debit adjustments                                                       \$153.1

Credit (in billions)

AOL common stock at par issued to pay for TWX                              \$   0.1

Addition to AOL paid-in capital                                                            153.0

Total pro forma credit adjustments                                                      \$153.1

C3.3.4 Calculate the percent of goodwill and other intangibles to total assets for AOL and for TWX premerger and for the pro forma combined company post-merger. Discuss.

C3.3.5 Calculate the percent of total liabilities and of shareholders’ equity to total assets for AOL and for TWX premerger and for the pro forma combined company post-merger. Discuss.

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