Why was the merger between AOL and Time Warner (NYSE:TWX) such a debacle? Nina Munk answers this question in her book Fools Rush In. Munk is interested primarily in the people behind the deal that would eventually destroy billions of dollars of shareholder value.

Let's go back to 1999 and meet the cast of this modern-day Greek tragedy.

  • Jerry Levin, CEO of Time Warner: The cunning Levin was looking for a "transforming transaction" that would seal his legacy and revive his sagging stock.
  • Steve Case, CEO of AOL: The aloof Case recognized that AOL's sky-high valuation could vanish at any moment.

On paper, the answer to both men's problems was simple: Combine the two companies. AOL could trade in its Internet wampum for the hard assets of a powerful media company. At the same time, Time Warner could enter the digital age.

Furthermore, Case and Levin were idealists. To them, the deal was more than dollars and cents. Both men wanted their new company to change the world.

Sounds logical, right? Unfortunately, theory and practice don't always agree. Case and Levin failed to recognize the differences between the traditional Time Warner employees and the "Internet cowboys" over at AOL. Time Warner employees cared about job security and pension plans. AOL employees were mostly concerned with stock options and beating Wall Street estimates. AOLers felt their Time Warner counterparts were "complacent" and "out of date."

The synergies between the companies never materialized. Even the most basic attempts were a disaster. Take email, for example. AOL Time Warner could have saved $30 million per year by switching Time Warner over to AOL's email system. But as any AOL member will tell you, AOL's email was not cut out for corporate use. It deleted messages after seven days, and it couldn't handle the large media files Time Warner used. After only one year, AOL email was abandoned in many departments.

Did AOL and Time Warner rush into this deal, as Munk claims? Let's put it this way: The due diligence for the entire megamerger took only three days. It took me almost as long to write this book review.

I enjoyed Munk's book, and it moved at a fast pace. Finance can sometimes seem dry when you're looking at numbers all day, but Munk shows that there are real people behind those numbers. That's why some of the best stock pickers I know consider management equally as important as margins or free cash flow.

Fools Rush In was published in 2004. I wonder whether Munk has changed her opinion since then. Content seems to be king these days, as sites like YouTube, MySpace, and del.ici.ous get all the attention. Big media and Internet players like Yahoo! (NASDAQ:YHOO), Google (NASDAQ:GOOG), News Corp. (NYSE:NWS), and Warner Music (NYSE:WMG) are all trying to get in on the action. Maybe Case and Levin were on to something when they merged old media and Internet. Maybe, like many visionaries, they were just ahead of their time.

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Fool sector head Joey Khattab does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.