What makes a merger work?
That question has newfound relevance with the announcement that the US Department of Justice has sued to stop the proposed union of Time Warner and AT&T. Despite the lawsuit, history (and even the DOJ’s own antitrust guidelines) suggests that a vertical merger like this one will eventually go through, whether as-is or with changes (such as requiring AT&T to sell off CNN or other assets).
Yet if and when it does, executives and shareholders will have to reckon with the fact that few mergers of any kind succeed in creating the value their supporters promise. The reason? Culture. That is why Time Warner and AT&T would do well to draw on the lessons of their past mergers, particularly on the Time Warner side.
Take Time Warner’s 2001 merger with AOL, which was widely regarded as disastrous. Though many factors conspired to undermine the deal, including the collapse of the dot-com bubble, those who experienced the merger first-hand also cited a clash of cultures. Time Warner executives saw AOL as arrogantly attempting to inject “internet DNA” into the company, while AOL executives were frustrated by what they saw as Time Warner’s resistance to change. As the two sides continued to clash—with an AOL accounting scandal provided a rallying cry for the Time Warner side—the deal soon unwound, and investors and employees lost millions of dollars. Time Warner executives today express similar concerns about the potential erosion of a talent-driven culture that prizes autonomy and creativity.
Before AOL there was Warner Communications, which merged with Time, Inc. in 1989 to form Time Warner itself. A spate of infighting and power struggles roiled the company almost immediately, with Time, Inc.’s former president leaving in 1992. And, even after it weathered these initial rocky years, the company faced difficulty creating a unified corporate culture, with separate and sometimes-contentious fiefdoms emerging instead. Much of this early trouble was rooted in the very motives behind the 1989 deal, which arguably was driven more by fears of a takeover by figures like the newly-ascendant Rupert Murdoch than by a desire to wed the strengths of Time, Inc. and Warner Communications.
Time Warner’s eventual success, after it recovered from the AOL deal, coincided with a considerable slimming down during the 2000s: shedding its book, music, and cable groups and even spinning off Time, Inc. (which publishes Time Magazine) into its own company in 2013. In other words, the obstacles it faced in the wake of these two mergers—a clash of executives and cultures and an overly broad range of missions and subsidiaries—were largely the result of the mergers themselves.
Of course, Time Warner and AT&T are gambling that this time will be different, and maybe it will be. Their union is generally forward-looking—a desire to combine AT&T’s wireless distribution capabilities with Time Warner’s content production—rather than reactive, whether to industry changes (as in 1989) or to dot-com hysteria (as in 2001). Still, another culture clash is a legitimate concern.
How, then, to avoid history repeating itself?
Time Warner and AT&T can start by crafting a a narrative of their two predecessor firms that preserves and even celebrates autonomy while uniting two sides around a common culture and strategy. For instance, Warner Brothers (which became the Warner half of Time Warner) and AT&T share very similar founding stories, with both launched by enterprising immigrants who traveled from Europe to Canada.
A single, cohesive corporate story can go a long way toward fostering a shared mission and values that unites predecessor firms. If and when AT&T and Time Warner consummate their union, they would do well to use their pasts in the same way, even as they seek to avoid—precisely because they seek to avoid—past mistakes.
Arielle Gorin, a Saybrook consultant, specializes in the history of the US and Canada. She is currently researching a history of the Ford Foundation.