A few people with more financial knowledge than I have set me straight on the fact that when one company acquires another by paying in stock, it doesn't hurt the purchasing company particularly at all, especially if the companies being bought have no liabilities. (See TidBITS-280 for the article about AOL's acquisitions.)
Charlie Mingo <firstname.lastname@example.org> explained:
As you noted in the article, AOL paid for all these purchases with AOL stock (except for $2 million of the $11 million for GNN). When you pay for a new asset with stock, we call it a "pooling of interests," and there are usually no negative financial consequences at all.
If you pay out too much stock per share of stock acquired, then you may suffer "dilution," which means your earnings per share goes down. But this is only of significance to your original (pre-merger) shareholders; the company itself isn't affected.
In contrast, IBM's offer to buy Lotus with cash will definitely have an adverse affect on IBM's finances. They try to minimize this by saying they will finance the purchase out of ready cash (pocket money, so to speak), but I presume they were forced to offer cash because they couldn't hope to do a hostile takeover while offering IBM stock.
Wesley Felter <email@example.com> added:
I think you missed one large thing in the AOL Buys Everyone story: MegaWeb. I'm not sure whether MegaWeb was originally being run by BookLink or ANS, but now it's part of AOL and it provides free Internet access to my two Windows machines.
Still Weak? Nonetheless, Marketing Computers reported in its Jun-95 issue that America Online lost $2.8 million (on revenues of $106.4 million) for the three months ending 31-Mar-95. And, for the first nine months of the current fiscal year, AOL is down $40.5 million. AOL claims that the loss is due to the acquisition of ANS, BookLink, and NaviSoft last year, although one might wonder how much it costs to mail floppy disks to a large portion of the Earth's mammalian population.
Mike Hutchinson <firstname.lastname@example.org>, AOL Services Webmaster, wrote to say that AOL is definitely working on getting a Web site up and running. He added that in the interim, you can check out:
Brian Pinkerton, the author of WebCrawler, has a substantial amount of information about AOL online, including all of AOL's recent press releases.