Case 20: AOL Time Warner (2002)

• Prof. Dr. Klaus Henselmann
• Dr. Stefan Hofmann

AOL Time Warner Inc. was formed by the merger of AOL and Time Warner in January 2001. Whereas AOL (located in Dulles, Virginia) provided its members with access to the Internet, Time Warner was a media and entertainment giant headquartered in New York. The implied market value of the merged company was approximately USD 200 billion, making it the then-largest merger in U.S. history. However, in mid-2000, while the AOL/Time Warner merger was still pending, stock prices of Internet-related businesses began to decline precipitously. As the “Internet bubble” was deflating, sales of online advertising declined and the rate of growth of new online subscriptions started to flatten. It was during this period that AOL engaged in accounting fraud to mask the fact that it was also beginning to experience a rapid business slowdown. The SEC complaint detailed a wide array of wrongdoing, including fraudulent round-trip transactions to artificially boost online advertising revenue, fraudulent inflation of AOL subscriber numbers, and misapplication of accounting principles relating to AOL Europe,

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