The AOL Time Warner merger created a combined entity with a market value of approximately $290 billion, ranking it fifth among U.S. companies. Analysts found it challenging to determine the merger's true value, focusing more on market capitalization than on actual earnings. AOL earned $762 million the previous fiscal year, while Time Warner's net income was expected to be around $1.3 billion, leading to total earnings of roughly $2.3 billion. This valuation resulted in an astonishing ratio of over 100 times earnings, raising concerns about potential overvaluation in the merger.
"Frankly, it is difficult to project the true potential of this new entity, but we know it is big." This reflects the widespread confusion surrounding the AOL Time Warner merger.
AOL Time Warner had a market value of around $290 billion after the merger, placing it about fifth in market-value rankings.
Despite the massive market capitalization, the combined profits of AOL and Time Warner were estimated at just $2.3 billion, leading to a valuation over 100 times earnings.
The lack of focus on real earnings in early analyses suggests that the financial ratios may mislead investors about the merger's true value.
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