AOL Time Warner chief quits, still confident about merger

NEW YORK -- Outgoing AOL Time Warner chairman Steve Case acknowledged Monday that the 2001 merger he helped orchestrate has not lived up to expectations, but he said he remains confident that the marriage of Time Warner and America Online will prove sound over the long run.

"There's no question that this merger so far has been a disappointment," he said in an appearance on CNBC. But "if you look out 10 to 15 years, I think people will look back and have a different view on this merger."

Case announced Sunday that he would resign his post at the media conglomerate in May, saying he had become a distraction and had concluded AOL Time Warner was better off without him as chairman.

"Some shareholders continue to focus their disappointment with the company's post-merger performance on me personally," said Case, who will remain on the board of directors.

The decision was greeted with some relief on Wall Street, where many investors, furious over the more than 60 percent plunge in the company's stock price and an accounting scandal, had been demanding his departure. When he departs, the company will be without any of the key architects responsible for the deal.

In late morning trading on the New York Stock Exchange, shares of AOL Time Warner rose 33 cents, or 2 percent, to $15.21.

Case's departure may have been hastened by recent reports of more financial problems at the company.

AOL Time Warner, which took a $54 billion charge last year to account for a decline in America Online's value, is expected to report another multibillion-dollar write-down later this month for the same reason -- possibly in excess of $10 billion, according to some analysts.

The announcement came almost exactly two years after the company's big merger was finalized.

AOL Time Warner spokeswoman Tricia Primrose said Case made his decision Friday after months of consideration, and notified executives and the board over the weekend.

"He was aware that there had been some swirl about whether he should stay a few months ago," she said. "He knew that while it had died down, there was a possibility it could come up again as we headed toward the shareholder meeting in May, and frankly he wanted the company to be able to move forward without being distracted."

Case will continue to co-chair the company's Strategy Committee, although it remains unclear how much of an influence he -- or his old company, America Online -- will have on AOL Time Warner.

Next to Case, the top-ranking executive from the America Online side of the business is Paul Cappuccio, the company's general counsel. The majority of the new management team, including current chief executive Dick Parsons, comes from the Time Warner side.

The announcement raises the possibility AOL Time Warner will change its name back to Time Warner to reflect the dominance of businesses in that part of the company. Those units, which include movie studios Warner Brothers and New Line Cinema, Time magazine, TV channel HBO and Time Warner Cable, continue to perform at or near the top of their industries.

"Case's departure is the final step in new media's loss of control over Time Warner," said Dylan Brooks, senior analyst for Jupiter Research.

Case co-founded Internet service provider America Online in 1985 and used its skyrocketing fortunes in 2000 to unleash the $106 billion acquisition of Time Warner's film, magazine and cable TV empire.

The 44-year-old Hawaii native presided over almost a decade and a half of remarkable growth at AOL, the first Internet company to be named to the Fortune 500. Many analysts credit the online service provider with almost single-handedly introducing Americans to the Internet, and investors soon took notice, bidding its stock into the stratosphere by the time of the merger.

The takeover of Time Warner was initially promoted as an exciting example of a new economy business reviving an old one. With 35 million members worldwide, the service remains three times as large as its nearest rival, Microsoft's MSN service.

But its fortunes soured alongside other technology companies. AOL Time Warner stock closed Friday at $14.88 -- more than 60 percent below the $47 it traded at in 2001 when the merger was approved, and roughly 80 percent below the $72 price tag it carried in 2000 when the merger was announced.

Growing investor dissatisfaction forced many of the proponents of the merger out.

Jerry Levin, the Time Warner chief executive at the time of the merger, retired in May. Bob Pittman, an America Online veteran, resigned as chief operating officer in July. Barry Schuler lost his job as America Online chief executive in April and was reassigned to a lower-profile position.

The merged company also has been hampered by the collapse of Internet advertising, along with investigations by the Securities and Exchange Commission and the Justice Department into AOL's bookkeeping practices. In October, AOL Time Warner said it would restate two years of financial results because of accounting practices at America Online that had inflated revenue by $190 million.

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