Remember synergy? Once upon a time — the 1990s, to be precise — scores of corporate leaders assured us that, thanks to the new business math, companies adding the right assets together could multiply in value. Alas, there was one problem with synergy: It rarely worked.
Consider the disastrous merger between America Online and Time Warner, whose CEOs, Steve Case and Gerald Levin, presented the deal in January 2000 as the ultimate synergy between old and new media. Four years later, AOL Time Warner’s finances have sagged, Case and Levin have been ousted and the companies have surgically detached their names from one another. As Kara Swisher demonstrates in her lively book about the merger, “There Must Be a Pony in Here Somewhere,” the most obvious synergy generated by the union has been an epidemic of squabbling far greater than any two companies could possibly have produced if left apart.
Indeed, Swisher records a litany of gripes from Time Warner executives who appear permanently outraged at their firm’s takeover by a mere Internet company (AOL was granted 56 percent of the merged entity), a circumstance that helped fuel a celebrated clash of corporate cultures. Thankfully, Swisher — a Wall Street Journal columnist, former Washington Post reporter and author of a previous book about AOL — moves her narrative along swiftly and adopts a pleasingly irreverent tone, rather than ponderously building melodrama like so many executive-suite tomes. (The title refers to a favorite joke of an AOL executive, about an optimist hunting through manure.)
Better yet, Swisher diligently reconstructs the optimism with which many Time Warner officials (including Ted Turner) greeted the merger. Most of those now unhappy with the deal, she says, are “suffering from a peculiar amnesia.” One exception is a Time Warner executive who acknowledges, “I thought I was headed for an early retirement, since it looked like the shares were going to be okay at first. I won’t deny the greed.”
Ultimately, Swisher addresses two main questions: Why did the principals agree to the merger? And who is to blame for its dismal outcome? On the first count, Swisher largely believes that AOL executives realized their company should use its colossal market capitalization to acquire assets before the Internet stock bubble exploded. “We all knew we were living on borrowed time and had to buy something of substance,” one of them tells Swisher. By contrast, Levin gained control of Time Warner after shrewdly gambling on the success of emerging technologies, especially cable television, and badly wanted in on the Internet boom. According to Swisher, Levin’s vision of convergence — the integration of media technologies — dated to the 1980s. Certainly it fired his enthusiasm for two Time Warner ventures — its mid-1990s interactive television project, the Full Service Network, and the Pathfinder Web site — whose status as costly flops made Levin increasingly anxious to possess a successful Internet arm. Thus, as 1999 ended, Levin hurriedly arranged the merger with Case with little input from colleagues, and persuaded Time Warner’s board to sign off after what looks like astonishingly minimal oversight. Advantage, AOL.
When examining why the merger flopped, however, Swisher seems overly impressed by the clash-of-cultures explanation, repeatedly emphasizing how both sides failed to mesh: “To Time Warner, AOL was rude and rambunctious, facile and ignorant about the complexities of the various businesses… . To AOL, Time Warner was political for the sake of politics, slow moving and obdurate, and unwilling to make the changes needed to face down the challenges of the future.” That may be, but the AOL-Time Warner union did not fail primarily because of clashing management styles. It failed because it was a bad idea. Levin, for one, seems incapable of articulating precisely how Time Warner, already a diverse media giant in 1999 — with businesses as a broadband Internet and cable provider augmenting its copious television, film, print and music holdings — would find synergy in a dial-up Internet service provider. “Internet DNA was absolutely essential to me,” Levin tells Swisher, a comment revealing for its vagueness. Surely AOL’s negligible broadband presence should have mattered, too. Time Warner now seems as likely to find digital convergence without AOL’s presence, anyway.
After the merger, Case and Levin also lacked the courage of their long-term vision. They set unrealistic quarterly profit targets, which forced cost-cutting measures such as layoffs at CNN. The company missed its targets anyway, and soon Time Warner’s executives completely soured on the deal. While Swisher discusses these points, they merit further attention.
The merger was not a total loss, though. Swisher has produced an enjoyable book about it. Economists who have long argued that most mergers reduce corporate value have a fine case study on their hands. And the rest of us no longer have to endure that endless talk about synergy.
