Is Amazon/Whole Foods This Cycle’s AOL/Time Warner – A Sign That The Party’s Over?
Is Amazon/Whole Foods This Cycle’s AOL/Time Warner – A Sign That The Party’s Over? by John Rubino – Dollar Collapse
Towards the end of the 1990s tech stock bubble, “new media” – i.e., the Internet — was ascendant and old media like magazines, newspapers and broadcast TV were yesterday’s news. This was reflected in relative stock valuations, which gave Internet pioneer AOL the ability to buy venerable media giant Time Warner for what looked (accurately in retrospect) like an insane amount of money.
Now fast forward to 2017. Online retailing is crushing bricks-and-mortar, giving Amazon all the high-powered stock it needs to do whatever it wants. And what does it want? Apparently to run grocery stores via the acquisition of Whole Foods, the iconic upscale-healthy food chain.
The two deals’ similarities are striking, but before considering them here’s a quick AOL/Time Warner post-mortem:
(Fortune) – The landscape of mergers and acquisitions is littered with business flops, some catastrophic, highly visible disasters that were often hugely hyped before their eventual doom. Today marks the 15th anniversary of one such calamity when media giants AOL and Time Warner combined their businesses in what is usually described as the worst merger of all time. But what happened then will happen again, and ironically for the exact same reasons.A lot of people thought that the merger was a brilliant move and worried that their own companies would be left behind. At the time, the dot-coms could do no wrong, and AOL (AOL) was at the head of the pack as the ‘dominant’ player. Its sky-high stock market valuation, bid up by investors looking for a windfall, made the young company more valuable in market cap terms than many blue chips. Then CEO Steve Case was already shopping around before the Time Warner opportunity came up.
On the other side, Time Warner anxiously tried, and failed, to establish an online presence before the merger. And here, in one fell swoop, was a solution. The strategy sounded compelling. Time Warner (TWC), via AOL, would now have a footprint of tens of millions of new subscribers. AOL, in turn, would benefit from access to Time Warner’s cable network as well as to the content, adding its layer of so-called ‘user friendly’ interfaces on top of the pipes. The whole thing was “transformative” (a word that gets really old really fast when reading about this period). Had these initial assumptions been borne out, we might be talking today about what a visionary deal it was.