AOL Time Warner Case Accounting Coursework Assignment

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ANSWER Q1- 5
1. Describe the major synergies and other sources of value creation associated with the merger.
2. The terms of the merger represent a significant premium to Time Warner shareholders. Quantify
this premium. (Note: use the number of shares on pages 13 and 16 of the proxy statement
– 2,255 for AOL and 1,301.5 for TW).
3. Do you think that the additional value created by the deal is sufficient to justify the premium
being offered to Time Warner shareholders?
4. Estimate AOL’s pre-merger intrinsic value by uploading the posted AOL eVal file (make sure
that the valuation date is set to January 10, 2000 and leave all other assumptions at their default
values). What is the intrinsic stock price for AOL? Do you think that this is a reasonable premerger
valuation?
5. Assume that the default assumptions in question 4 above are appropriate for a ‘pre-merger’
AOL, and that the addition of Time Warner to AOL increases the value of AOL by exactly the
$142 billion purchase price given in the online Exhibit 2 (i.e., the acquisition is a zero NPV
investment). Compute AOL’s ‘post-merger’ intrinsic stock price. Note that you do not need to
use eVal for this question.

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