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Case to Resign as Head of AOL

The Internet pioneer who shaped the merger with Time Warner bows to pressure and will quit as chairman of the media giant in May.

January 13, 2003|Edmund Sanders and James Bates | Times Staff Writers

Internet pioneer Steve Case, architect of the deeply troubled merger that created AOL Time Warner Inc., said Sunday that he would step down as chairman because his leadership had become a "distraction" for the media giant.

The resignation, which becomes effective in May, means the two executives who devised the combination have now become casualties of the deal. Former AOL Time Warner Chief Executive Gerald M. Levin quit a year ago.

The company's top ranks also are swept clean of executives who came from America Online Inc. when it merged with Time Warner Inc. two years ago in a match that was supposed to reinvent the media world but quickly became a watchword for failed corporate ambitions.

Conceived at the peak of the dot-com boom, the $106.2-billion merger married an aggressive Internet service provider with one of the country's largest movie, television and magazine companies. The firms' conflicting corporate cultures never made a match, and America Online's position in the marriage slipped badly as Web advertising collapsed, taking the combined company's stock price with it.

"I'd rather be chairman," Case said in an interview Sunday night. "This may not be what's best for Steve Case. But it's best for AOL Time Warner."

Case's resignation leaves authority squarely in the hands of President and Chief Executive Richard Parsons, who took the reins when Levin resigned a year ago. AOL didn't immediately name a new chairman but is expected to do so before Case leaves the post.

Case finally succumbed to forces that had been building since he survived a widely reported attempt to oust him in September. No company director publicly called for his removal. But several -- including Hilton Hotels Corp. chief Stephen F. Bollenbach and former Major League Baseball Commissioner Francis T. "Fay" Vincent Jr. -- worked behind the scenes to end Case's leadership.

Media mogul Ted Turner, a major shareholder and board member, had previously played a role in Levin's exit and also indicated he would support Case's departure. But the issue wasn't formally raised at a September board meeting.

Turner and other shareholders have been bruised by a deep plunge in AOL Time Warner shares, which shaved well over $100 billion from their portfolios since the merger was consummated. The company's stock closed Friday at $14.88, up 55 cents in New York Stock Exchange trading after trading at about $55 in January 2001.

AOL Time Warner last year posted the biggest quarterly loss in history -- $54 billion -- and is expected to post another loss as high as $20 billion this month. Accounting practices at the Internet unit also are the subject of a federal probe.

Given the financial turmoil, some investors said they remain disappointed that Case will stay on AOL's board and will serve on its strategy committee.

Jeffrey Logsdon, managing director of investment bank Gerard Klauer Mattison, gave Case credit for recognizing that the investor sentiment was too much to overcome.

"That was probably an insurmountable mountain to climb," Logsdon said. "The difficulties AOL has experienced are bigger than Steve Case, but as chairman of the company you have to be in a position to affect strategy and accountability if you are to get to a better place. Wall Street kept waiting for him to emerge in that role, and it became very evident he wasn't going to."

Within the ranks of the New York-based conglomerate -- owner of such respected brands as the Warner Bros. studio and Time magazine -- some executives are now expected to renew a campaign to lop AOL off the company name. They say that both the AOL name and stock ticker symbol hang around the firm like an albatross.

Case, 44, said he made the decision to resign as chairman Friday. He called CEO Parsons the next morning and informed other board members Sunday.

A former Pizza Hut manager, Case became a billionaire by building America Online, with its "You've got mail" trademark, into the country's best-known gateway to the mushrooming Web. At the giddy peak of the Internet boom, Case and Levin plotted the deal at Case's Virginia home, lauding each other at a news conference days later, which Levin described as "hugs and high fives."

But competitors and new technologies are now threatening the service's customer base, even as Internet advertising revenue has imploded.

Despite the unsuccessful effort to nudge him out last September, Case insisted Sunday that he was under no immediate pressure from any board members to leave.

He said one director, whom he declined to identify, asked him to step down last fall, but there had been no subsequent conversations with directors about his departure.

Case said he feared that speculation about his future might pick up again before the May shareholders meeting and decided the company could not afford another public distraction.

"Why should I put the company through that?" Case said. "This opens another chapter, for AOL Time Warner and for me."

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