Time Warner And AOL Call It Quits

Here comes another high-profile divorce. After eight years together, Time Warner and AOL have called it quits.

I think this is a great move that is long overdue. Seems like this is a situation where the two individual firms were more valuable than the sum of the parts.

Photo by cpchannel, courtesy of flickr

When the deal took place, I remember thinking it was just too big. But, I must admit, I never thought it would turn out to be such a bad investment.

Prior to purchasing AOL, Time Warner (Ticker: TWX) was seemingly unstoppable. In 1992, Time Warner shares began trading around $13 each.

By the end of 2000, shares were trading at $35. Not bad, but these prices grossly understate the return on TWX because during that time, the company issued seven 2:1 stock splits. (View the chart)

Since the merger, Time Warner has underperformed all three major indexes. An investment in TWX after the merger, would have resulted in a loss of 80 percent vs. about 20 percent for the Dow and near 30 percent for the Nasdaq and the S&P 500. (View the chart)

With a chart like that, I can understand why Time Warner’s board is saying good riddance.

According to the Associated Press, Time Warner owns 95 percent of AOL and plans to purchase the remaining 5 percent share from Google. Around year end, AOL will stand alone and begin trading with its own ticker.