Today marks the end of what has been called the worst corporate acquisition of all-time - AOL's acquisition of Time Warner, as AOL gets listed on the NYSE. While AOL works to redefine itself and its underlying value proposition, it's worth taking a moment to review some important lessons that AOL/Time Warner taught us.
- Profits, and by extension stock valuations, are an end - not the means. When the focus becomes "profit" rather than on value creation, the strategy is doomed to failure. The AOL/Time Warner merger was hailed under the banner "synergy," but when pressed to answer the question "what would be different & better for the consumer" there was no answer.
- Mergers rarely work. The opportunity costs related to lost focus are most often far, far greater than any perceived gain.
- When I was a new advisor at Merrill Lynch, cold calling my way to appointments and overcoming objections to get those appointments, my Managing Director gave me some great advice. He said, "Doug, if they tell you they don't have any money - believe them." I've taken that lesson and created a new one, "If you can't figure out how they are making money - they're probably not." The merger has been called the worst purchase ever. The reality is that this is not true. Remember, AOL bought Time Warner. For AOL, it was a great purchase. They took an inflated asset (their stock) and bought real revenue. Had AOL not had Time Warner, they would probably not be in business today. Steve Case didn't make a mistake buying Time Warner, Gerald Levin made a big mistake selling to AOL. Why did he sell (and the board and stockholders agree)? Because he was envious of AOL's "profits." Had he focused on his core business, rather than chasing the "greener grass," Time Warner would be in far better shape, and its stockholders would be much more wealthy.
- Which brings us to our fourth (and probably most important) lesson. Don't confuse brains with a bull market. I caution CEOs in every speech I make - just because the fish are jumping in your boat doesn't mean your an expert angler. AOL's success had far more to do with the market, the environment and the timing than it did with any business strategy. Just today, I was asked about all the apparent exceptions to The Five Unbreakable Rules for Creating Demand. I responded that while there are certainly exceptions, and that more businesses than I can count have done the wrong things, and still succeeded. But note that if the success isn't replicable, there is no lesson worth learning. AOL's problem was that what they did to be "successful," simply wasn't replicable. Had they kept that clear, they may have altered their business model and could have found themselves in a much healthier place today.
What lessons can you apply to your business?