Micro and Macro Economics Subject: Professor: April 4, 2013 Question 1 When the two leaders of the combining companies met in China, the two leaders excitedly decided to pursue the merger. The proposed merger between Time Warner and America Online had been planned to formally take effect on January 2000…
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A rosy business environment means that merger forecasts indicated that the combined company will be able to create a profitable synergy. The synergy included combining the marketing and management strategies of both companies. Since the two companies were economically profitable prior to the January 2001 merger, all business predictors expected that the combined company will be able to generate additional revenues that will surpass the combined revenues and profits of each of the two merger companies combined (Lipsey, 2007). In fact, the merger was a huge projected gamble at $348 million investment money on the line. Both America Online’s founder, Stephen Case, and Time Warner’s chief executive, Gerald Levin, had very high hopes that the merger will bring more revenues and profits to the new giant company, the merged entity cropping up from the two companies. The merger was expected to generate an equal share in the shareholders’ dividends. The board of directors of each of the two combining companies was expected to vote equally on all business decisions of the combined company (Hoskisson, 2005). Question 2 Both companies had similar motives for ensuring the success of the merger. Time Warner entered the merger in order to enhance its benefits from both the supply equation and demand equation (Microeconomics). Similarly, America Online entered the merger in order to enhance its present benefits from both the supply equation and demand equation (Hirschey, 2005). Additionally, Time Warner joined the merger to enhance the company’s macroeconomic environment. The company’s macroeconomic goals included improving its total economic activity, especially in the area of growth. The company’s other macroeconomic goals included the successful resolution of the obstacles of inflation. Further, the company’s macroeconomic goals included contributing to the reduction of the nation’s unemployment rate (Hall, 1997). Similarly, America Online vigorously entered the merger in order to enhance the company’s macroeconomic environment on January 10, 2000. The company’s macroeconomic goals included improving its total economic activity, especially in the area of growth (Tucker, 1997). The company’s other macroeconomic goals included the successful resolution of the obstacles of inflation (Khoury, 2003). Further, the macroeconomic goals of Time Warner and America Online are geared towards contributing to the improvement of the nation’s economy. The nation’s economic indicators include gross domestic production. The nation’s economic indicators include international trade. The merged company’s global market included clients from outside the United States. The merger between Time Warner and America Online occurred on January 2000. The merger was considered as one of the largest merger s in United States history. The merger involved an estimated $348 million. America Online’s founder, Stephen Case, was proud with the merger. Likewise, Time Warner’s chief executive, Gerald Levin, felt that America Online’s formidable internet presence would catapult America online to greater financial profit heights (Hoskisson, 2005). After the merger was consummated, the new merger focused on reducing the number of redundant employees. With the retrenchment, the number of unemployed United States citizens ballooned to unfavorable macroeconomic levels. Today the combined value of the two companies, Time Warner and
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