After a hostile takeover bid, a friendly merger: AOL/Time Warner players discuss the 'new era of shareholder activism'
Post Date: December 2006
Professor Robert Clark
When aol bought Time Warner in January 2000, experts predicted that the deal, the largest company merger in history, would create an unrivaled leader in the delivery of news, entertainment and other content in the rapidly exploding age of the Internet.
Five years later, the conglomerate found itself struggling with various woes, including low earnings. In a reversal of fortune that stunned even jaded Wall Street analysts, Time Warner AOL - beset by shareholder unease - suddenly found itself staring down the barrel of a takeover attempt led by investor Carl Icahn.
That attempt, which ultimately failed last year after a bitter battle between titans of the corporate and investment banking worlds, was the focus of a panel at HLS this October, in a popular course, Mergers, Acquisitions, and Split-Ups. The course was taught by former Dean Robert Clark '72 and Leo Strine Jr., vice chancellor of the Delaware Court of Chancery.
What guaranteed a standing-room-only crowd was that the principal players in the drama - with the lone exception of Icahn - were in the Austin Hall classroom: Time Warner CEO Richard Parsons; Bruce Wasserstein '70, CEO of Lazard, the investment bank hired by Icahn to make the case for the takeover bid to shareholders; and Gene Sykes, co-chair of Global Mergers & Acquisitions at Goldman Sachs, retained as an adviser to Time Warner.
Wasserstein and Parsons - rivals during the struggle for control of Time Warner's destiny - sat amiably together and shared perspectives on what the battle revealed about merger trends, shareholder behavior and other market forces.
Parsons recalled how he had been tasked with increasing the stock price and breathing new life into an anemic company in 2002 when he took over as CEO. Although he amassed a solid team of leaders, strengthened Time Warner's divisions and settled massive litigation claims stemming from the merger with AOL, he ultimately failed to move the price of Time Warner stock, leaving the board and shareholders restless.
"A fundamental rule is that bad things happen to good managers," said Wasserstein, who volleyed back and forth with Parsons. "And I will admit, you were dealt a lousy hand. But dialogue would have been good," he said, referring to poor communication with shareholders. The panelists agreed that a new era of shareholder activism is upon them, and that communication with shareholders is essential.
During the takeover bid, Parsons - taking a page from Wasserstein's recommendations to Icahn - put new emphasis on investor relations and made Time Warner shareholders' concerns a priority. As a result, he was able to take the steam out of Icahn's bid to break up the company and install a new board.