Klarinet Archive - Posting 000453.txt from 2003/02

From: Neil Leupold <leupold_1@-----.com>
Subj: Re: [kl] company acquisitions? Oy.
Date: Sun, 16 Feb 2003 11:48:55 -0500

MBA 101 "Case" study:

1. General statement on management wisdom. Looking at the fun-house mirror effects of financial
reporting policy -- as a method for measuring the strength of an enterprise -- is the sort of
approach to management that enables a CEO to throw himself a congratulatory party while his
company's stock goes down the toilet. 10-K's and balance sheets don't tell the whole story.
Managers and investors alike need to get their heads up out of the numbers in order to
successfully steer and evaluate a company.

2. Point #1 above is moot in this case, and the statements made below pertain to an AOL Time
Warner that exists in a sunny alternate universe, where down is up and no=yes. Reality check: the
merger was three years ago (Jan. 10, 2000). Feb. 16, 2003: Steve Case *and* Ted Turner (the
corporation's largest stockholder) have resigned their board positions. AOL Time Warner's stock
has dropped from $71 at the January 2000 merger to less than $9/share presently. In the last year
alone, AOL's shares have tumbled 49%. Serious deliberations are underway to re-jettison AOL. Two
weeks ago, AOL Time Warner announced it was reporting a $45.5 billion quarterly loss. Why? To
account for the declining value of its "flagship" America Online property...bringing the company
to post a 2002 fiscal year loss of $99 *billion* -- the largest annual loss ever in the corporate
history of the United States of America. You could stew your books in chicken broth at 2000
degrees for a week and not come up with an accounting distortion of *that* proportion. The flag
on that ship is doubtless up in flames in the boardroom, in effigy to Steve Case and his
management team.

The positive performance of AOL Time Warner's traditional and entertainment businesses,
specifically Turner cable networks and its movie division, New Line Cinemas, are immaterial to the
fact that none of the synergies anticipated from the pie-in-the-sky merger ever materialized.
Instead, AOL turned into the world's largest albatross. It has indeed been a STELLAR year.
Astronomical, even.

--- CBA <clarinet10001@-----.com> wrote:
> Just an aside, since this was in the mix today...
>
> The main reason why AOL Time Warner (and many other large
> companies doing acquisitions) had a loss last year was because
> of a change in financial reporting and taxes that occurred after
> the Enron scandal. Companies and corporations are not allowed to
> take losses from their new acquisitions scattered over many
> years anymore. They have to take the acquisition loss ALL IN ONE
> YEAR.

<snip>

> Kelly Abraham
> Woodwinds - New York City

> --- Neil Leupold <leupold_1@-----.com> wrote:
> <<SNIP>>One of the
> > main reasons that one business might acquire another is in
> > anticipation of potential synergies
> > between their joint operations, e.g., AOL and Time-Warner,
> > which turned out to be a total flop, of
> > course.

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