Heh. My apologies. I guess I’m being a bit unclear. I’ll try to explain, but… first of all, simply speaking, you need a degree in accounting to fully understand this sort of stuff. Second, I don’t have a degree in accounting <smirk>. I don’t even have a good grounding in it, so my explanation might be a bit muddled.
The AOL-Time Warner merger was really AOL buying out Time Warner based on stock price. AOL stock was so high that it could agree to buy out every share of Time Warner stock using its own stock value as the “currency.” As I recall, it was arranged as a 55/45 percent merger. This means that the original AOL stockholders “spent” their stock to buy out Time Warner stock, which was promptly “destroyed.” AOL stockholders kept a 55% share of the total stock. I can’t really think of a good way to explain it; I apologize. Basically, just think of it as every piece of AOL stock being used to “buy” Time Warner stock. Therefore, AOL shareholders now owned 55% of the combined AOL Time Warner stock, instead of 100% of the AOL stock. This deal was approved by both boards for both companies.
Afterwards, for a variety of reasons, the combined AOL Time Warner stock sank a great deal. This much lower price was equivilent to the “currency” going into inflation and being worth a lot less. Therefore, federal accounting rules say that the decline in value has to be “paid back” to make it equal. The way that it gets paid back is to write it off as a loss for the combined companies… in this case, 98 billion dollars worth. That 98 billion dollars represents the decline of every piece of stock since the purchase was made.
Only the owners of stock can drive a price. If they buy in numbers, the stock price goes up. If they sell in numbers, the price goes down. It’s a case of supply and demand. For a variety of reasons, the stockholders decided that AOL stock wasn’t worth that much and began an exodus that drove the price down to where it is now, somewhere in the teens. That is what caused the 98 billion write off.
I have a feeling I’ve muddled the explanation badly, but hopefully you get the point. Maybe someone else should give it a try? Or heck, you could always try posting in GQ (ripping out this post entirely if you want) and seeing how close to the mark I am.
As an aside, this is why many Time Warner stockholders are upset. AOL gained a controlling share of the stock, which promptly sank down to quite a bit less than it was before for either company. Of course, since the Time Warner executives have almost total control of the board of directors, it more than balances. Remember that they agreed to it too, of their own free will. It wasn’t Case and Levin steamrollering it over them.