The real significance of the merger between America Online and Time Warner was the confirmation it offered that the old media and the new media were converging—a convergence that had devastating implications for Internet stocks. After all, the main rationale put forward for the high prices of these stocks was that Internet companies were completely unlike ordinary businesses, so standard methods of valuation didn’t apply. In using America Online’s inflated stock to buy Time Warner, Case held this argument up to the light, where it could be examined. Once there, it didn’t look very convincing.
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