September 18, 2002 4:00 AM PDT

Will AOL Time Warner oust Case?

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As the old guard reasserts its control over AOL Time Warner, some people are beginning to wonder where its demands will stop.

The new guard has long since been put in its place at the venerable media conglomerate, but vestiges of America Online's humbling takeover of Time Warner still remain, including the corporate name, the company's ticker symbol and Chairman Steve Case.

Calls for a spinoff of America Online have faded since the ascension of former Time Warner President Richard Parsons to CEO of the company earlier this year. But speculation about other forms of blood-letting have been whispered in advance of a board meeting scheduled for Thursday.

Prime among them: Will Case get canned?

AOL spokeswoman Tricia Primrose said there was "no basis" for rumors circulating about growing pressure on the board for Case's removal. "Steve Case is not going anywhere," she said.

Case, who requires the backing of just three out of 14 board members to stave off a coup, may or may not be in imminent danger of an ouster. But he continues to fend off angry shareholders who hold him at least partly responsible for a deal that preceded a 70 percent decline in the company's stock price since the January 2001 marriage.

Recent black eyes at the AOL division have likely done little to quell those feelings. Last month, the company admitted that the unit may have misreported some $49 million in revenue, a disclosure that came in the midst of a federal investigation sparked by allegations of accounting fraud at the division. Last week, meanwhile, AOL warned that it would miss its financial targets by as much as 5 percent for the year.

Case is a natural magnet for investor animosity, if only because he remains one of the last AOL executives to retain a high-ranking position at the company.

Former AOL Time Warner Chief Operating Officer Robert Pittman, a rising star who came from the AOL side, resigned earlier this year after being demoted to AOL's Dulles, Va., headquarters with orders to turn around the troubled division. With the departure of Pittman, the company is being run by Parsons and two executives splitting the day-to-day oversight of operations: former HBO CEO Jeffrey Bewkes and former Time CEO Don Logan.

"The Time Warner people kind of glare at Case like they're taking up cannibalism," said Phil Leigh, an analyst at Raymond James.

"The Time Warner people kind of glare at Case like they're taking up cannibalism."
--Phil Leigh, analyst, Raymond James

Some analysts added that Case's reputation as a hands-off manager does not carry much of a premium at a time when investors are seeking a fast fix for immediate problems.

Case does not have any operating responsibility and has spent most of his time out of the limelight. Instead of focusing on the day-to-day operations, Case sees himself as the visionary who tries to anticipate where the company will be five to 10 years from now. The problem is that the company's current issues are too immediate for the likes of long-term thinkers, said Youssef Squali, an analyst at First Albany.

"Even after the merger, his responsibility was to focus on what's going to happen five to 10 years down the road," he said. "At this point today, nobody could care less. Everybody's focusing on next quarter and next year."

Whether Case begins to feel the squeeze in the company's upper echelon remains to be seen. Case is trying to maintain his position as chairman of the company and is relying on support from some key loyalists on the board, according to reports. The New York Times reported that Ted Turner, the company's largest shareholder and a one-time backer of the merger, has sided against Case, along with all the members of the Time Warner side of the board.

Board members include Case, Parsons, AOL Vice Chairmen Kenneth Novack and Ted Turner; XO Communications CEO Daniel Akerson; Barksdale Management CEO James Barksdale; Hilton Hotels CEO Stephen Bollenbach; Frank Caufield, general partner of Kleiner Perkins Caufield & Byers; Miles Bilburne, managing member of ZG Ventures; Carla A. Hills, CEO of Hills & Co.; Colgate-Palmolive CEO Reuben Mark; Michael Miles, former CEO of Philip Morris; Fannie Mae CEO Franklin D. Raines; and Francis T. Vincent, chairman of Vincent Enterprises.

Other potential items on the wish list of an anti-AOL contingent could include a name change back to plain old Time Warner. But analysts said nothing would likely happen on that front as long as Case remained chairman.

"It's like when tobacco companies became unpopular," Raymond James' Leigh said. "Their names changed from Reynolds Tobacco to RJR so the name 'tobacco' could be taken out of there. I think you'd see something similar (at AOL Time Warner), but I think Case would have to go first."

 

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