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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  13 1. The lack of a compelling strategic rationale 2. Failure to perform due diligence 3. Postmerger planning and integration failures and 4) Financing and excessive debt The lack of a compelling strategic rationale. The decision to merge is sometimes not supported by a compelling strategic rationale. In the desire to be globally competitive, both companies go into the proposed merger with unrealistic expectations of complementary strengths and presumed synergies. More often than not, the very problems that prompted a merger consideration in the first place become further exacerbated once the merger is complete. Failure to perform due diligence. In the highly charged atmosphere of intense negotiations, the merging parties fail to perform due diligence prior to the merger agreement. The acquiring company only later discovers that the intended acquisition may not accomplish the desired objectives ("The Case Against Mergers," 1995). Often the lack of due diligence results in the acquiring company paying too much for the acquisition. The price of failure can be very steep. As AOL Time Warner shareholders discovered, the company wrote-off an estimated $54 billion in charges resulting from AOL’s deteriorating assets. Postmerger planning and integration failures. One of the most important reasons that mergers fail is due to bad postmerger planning and integration. If the proposed merger does not include an effective plan for combining divisions with similar products, the duplication can be a source of friction rather than synergy. Turf wars erupt and reporting functions among managers becomes divisive. The problem becomes further complicated when there are significant differences in corporate culture (Gershon, 2000, 1997).

Authors: Gershon, Richard. and Alhassan, Abubakar.
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13
1. The lack of a compelling strategic rationale
2. Failure to perform due diligence
3. Postmerger planning and integration failures and
4) Financing and excessive debt
The lack of a compelling strategic rationale. The decision to merge is sometimes

not supported by a compelling strategic rationale. In the desire to be globally competitive,

both companies go into the proposed merger with unrealistic expectations of complementary

strengths and presumed synergies. More often than not, the very problems that prompted a

merger consideration in the first place become further exacerbated once the merger is complete.
Failure to perform due diligence. In the highly charged atmosphere of intense

negotiations, the merging parties fail to perform due diligence prior to the merger agreement.

The acquiring company only later discovers that the intended acquisition may not accomplish

the desired objectives ("The Case Against Mergers," 1995). Often the lack of due diligence

results in the acquiring company paying too much for the acquisition. The price of failure

can be very steep. As AOL Time Warner shareholders discovered, the company wrote-off

an estimated $54 billion in charges resulting from AOL’s deteriorating assets.
Postmerger planning and integration failures. One of the most important reasons

that mergers fail is due to bad postmerger planning and integration. If the proposed merger

does not include an effective plan for combining divisions with similar products, the duplication

can be a source of friction rather than synergy. Turf wars erupt and reporting functions among

managers becomes divisive. The problem becomes further complicated when there are

significant differences in corporate culture (Gershon, 2000, 1997).


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