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No. of Recommendations: 2
This deal was a bamboozlement of TWX shareholders from the beginning. It is the equiv. of agreeing to sell the company for Russian Rubles. These execs must be insane. On one hand, you have a media conglomerate packed with real, tangible assets that are in many cases American institutions. On the other hand, you have a company that nobody ever heard of until about 1994, a company that really has no diversification, a company that is in a business with no barrier to entry. Sure, AOL has millions of people who use their service, but where's the profit? TWX can go buy a CD ROM with millions of people on it for $99.00. It would be a much better deal for them than to give away their company for an inflated currency which has been propped up by the fantasies of ignorant "investors" who have never experienced a market crash.
AOL is a glorified magazine. It has a nice number of readers but it doesn't warrant a premium of 80x earnings. Even more ridiculous is the fact that AOL was @ about 400-500x earnings when the suckers at TWX agreed to be taken by this.
You can't blame Steve Case & Co. for trying. It's a great deal for them. It's a way for them to actually lock in some great value to their stock. If they can get a sucker to accept their "bubble currency" at face value, why not? If at all, TWX should have purchased AOL @ a fraction of the then current market price. It still would have been a great deal for AOL. It is hollow money.
AOL at
If they were prudent, this would have been a "Take Under" from the beginning. This
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