| Enron-ing the Books |
21 April 2003
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Allegations Threaten AOLTW
Allegations have just come out about the book-keeping at AOL-Time-Warner that suggests the accounting principles used there are disturbingly similar to those that brought Enron down. While the facts have yet to trickle in, the situation is unsettling because AOL stock is down, its merger with Time-Warner has come under attack, and it is about to sell off a major asset, Comedy Central. These are all signs of a firm that may resort to accounting tricks to keep things afloat.
Perhaps the most upsetting is the allegation that AOL and Monster.com advertised on each other's websites (perfectly acceptable and actually sensible) and booked advertising revenues without any money changing hands (deceptive at best, fraudulent and criminal at worst). Such "round-tripping" was standard at Enron.
AOLTW is about to sell its 50% stake in Comedy Central, a valuable property, to Viacom, which owns the rest of the network. The price tag is the far side of $1 billion, and the opportunity for book-keeping shenanigans is mind-boggling at that price. At very least, Viacom may want to hold off on the purchase until it can make sure Comedy Central is really worth what it is paying. Unfortunately for AOLTW, that money is needed rather soon to make up for the $100 million loss in the last quarter reported and for future losses one can expect in the current business environment.
The irony here is that Viacom, which appears to be in good financial health, was the firm that didn't make the AOL deal -- Time-Warner did. The lesson about mergers is clear; sometimes, the best purchase is the one not made. Ted Turner must be a deep shade of burgundy over this.