Good morning my dear readers,

We meet again 🙂.

Let's continue with the learning with another case study from the past.

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AOL - The original Internet Company.

'AOL' (America Online), was the most recognised internet brand in the US in the 1990s. It was 'THE' company when it came to dial up services, email and instant messaging.

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In the year 2000, AOL merged with Time Warner, a deal worth a massive $165 Billion.

Let's move to 2010. The stage is set, just as we love it.

AOL is inside a conglomerate called Time Warner, struggling due massive clashes in corporate cultures between the two companies.

So finally, in 2010, the marriage is called off and AOL goes for a demerger.

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The following benefits occured, like in the case with many spin offs,

1- Strategic Focus: The spin-off allowed AOL to focus on its core business without being tied to the broader media and content operations of Time Warner.

*Freedom is important for companies to thrive.

2- Operational Independence: The separation gave AOL operational independence and the ability to make strategic decisions without needing to consider the broader interests of Time Warner.

3- Flexibility: As an independent entity, AOL had more flexibility to pursue partnerships, mergers, or acquisitions that were aligned with its strategy.

(Hypothetically speaking, if someone forced me to operate our business in a different way, didn't let me take my own decisions, I would be frustrated too. And if I could get freedom from such an environment, a lot of positive energy would be released within the organisation).

4- Market Evaluation: AOL had a clearer market valuation as an independent entity, as it was no longer bundled within a larger, complex entity.

(This is my favourite part of spin offs. Post demerger, there is 'lesser' to evaluate which makes it easier to model projections. Demergers lead to simplification and cleaner corporate structure. Hence, as an investor, it is a desirable outcome, not to mention the forced selling from old legacy shareholders is a boon for new investors too).

Lastly, the price chart below sums up what I have written above.

*Post demerger, AOL listed at $24, fell over the next 2 years towards $12.

And over the next 3.5 years, went from $12 to $50. Eventually the company was sold to Verizon.

*Kindly note, a lot of this information is being taken from the internet. If you spot any errors, kindly let me know.

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That is all for today my friends.

Enjoy the weekend and also enjoy the weather.

My Best,

Neil Bahal

Founder

Negen Capital