1. Describe the major synergies and other sources

1. Describe the major synergies and other sources of value creation associated with the merger.

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AOL Time Warner Case Accounting Coursework Assignment

INSTRUCTIONS:

take look at the case and the excel file 

ANSWER Q1- 5

1. Describe the major synergies and other sources of value creation associated with the merger.

2. The terms of the merger represent a significant premium to Time Warner shareholders. Quantify

this premium. (Note: use the number of shares on pages 13 and 16 of the proxy statement

– 2,255 for AOL and 1,301.5 for TW).

3. Do you think that the additional value created by the deal is sufficient to justify the premium

being offered to Time Warner shareholders?

4. Estimate AOL`s pre-merger intrinsic value by uploading the posted AOL eVal file (make sure

that the valuation date is set to January 10, 2000 and leave all other assumptions at their default

values). What is the intrinsic stock price for AOL? Do you think that this is a reasonable premerger

valuation?

5. Assume that the default assumptions in question 4 above are appropriate for a ‘pre-merger`

AOL, and that the addition of Time Warner to AOL increases the value of AOL by exactly the

$142 billion purchase price given in the online Exhibit 2 (i.e., the acquisition is a zero NPV

investment). Compute AOL`s ‘post-merger` intrinsic stock price. Note that you do not need to

use eVal for this question.

CONTENT:

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 th

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