Posted on 12/01/2002 3:03:03 PM PST by TennesseeProfessor
NEW YORK, Dec 1, 2002 /PRNewswire via COMTEX/ -- A detailed reconstruction of the AOL Time Warner merger, based on interviews with dozens of key executives close to the deal, offers a clear picture of what wrong: Steve Case and Jerry Levin, and their companies, were never right for each other, reports Senior Writer Johnnie L. Roberts in the December 9 issue of Newsweek (on newsstands Monday, December 2). While the popular strategy at the time of marrying New and Old Media may have made sense in the abstract, there were trouble signs from the very start that this marriage wouldn't work. The architects of the deal were incompatible, and their companies inevitably were, too. But they forced them together anyway, in an effort to secure their place in history.
Case and Levin's relationship, in fact, was far more contentious early on than many people believed. Barely a day and a half before their big announcement to merge, Newsweek has learned, Case and Levin were locked in a fierce power struggle. Levin, who was to be CEO, was worried about ceding too much power to Case, the chairman-designate. Yet he knew that Case, whose company's soaring stock made the deal possible, couldn't be seen by investors as a figurehead. The showdown "went down to the wire," people involved in the matter say. Levin, they added, was even prepared to walk away from the deal at the last minute. But they struck a precarious solution, with Case to rule over public policy and technology matters, and Levin overseeing the core media and online businesses. For the TV cameras, though, the two executives painted a picture of harmony. "Jerry and I worked out very early our relative responsibilities," Case said at the press conference.
The companies' cultural differences also sprung up over a critical issue: the dazzling financial results AOL Time Warner promised to deliver. The companies clashed over these projections much earlier than previously believed. Joan Nicolais, who was Time Warner's chief contact with Wall Street analysts, fiercely opposed the aggressive projections of a quick 30 percent profit increase to win Wall Street's support, several colleagues say. She preferred to offer straight guidance to Wall Street. Nicolais criticized AOL's approach as "basically an elaborate spin machine," says one top executive. "She didn't think the numbers added up." Nichols would eventually lose out to an AOL executive for the investor-relations post.
Pressures mounted as the stock fell after hitting its postmerger peak of around $60 and that was followed by the events of September 11. With AOL's credibility on Wall Street sinking and Jerry Levin's priorities shifting, Levin and Case were on a collision course. Levin was intent on acquiring AT&T's sprawling cable empire, a transaction that would have spread Time Warner Cable across about a quarter of the nation. It was the way he went about it, however, that led to a confrontation with Case and a crisis in the boardroom, according to senior officials. Levin simply pursued the transaction without consulting the board, according to these sources. "Steve made it an issue that he hadn't liked Jerry's approach" and that he wouldn't tolerate it, says one person close to the situation. On December 5, 2001, Levin abruptly resigned. Their relationship had come full circle. Levin didn't trust Case from the start because of his tough stance on a cable issue. And now a new disagreement over cable was the final straw. As a parting victory for Levin, he helped get Richard Parsons-co-COO-elevated as his successor over Bob Pittman, AOL's No. 2 executive and the presumed heir.
Perhaps no single shareholder has more right to be angry than AOL Time Warner's vice chairman, Ted Turner, whose stake in the combined company, once worth $7.2 billion, has plunged to about $2 billion. During a recent breakfast meeting with Parsons at the crowded Rainbow Club in Rockefeller Center, Turner, in a booming voice, was heard calling Levin names that are unprintable here.
And against the backdrop of the company's much-anticipated press conference this week, Newsweek has learned that because its stock is so beaten down, several Wall Street buyout firms have explored making a bid for the company's assets, particularly its online operations. Among them, according to executives privy to the talks: Henry Kravis' Kohlberg, Kravis and Roberts; the Blackstone Group; and J.P. Morgan Chase's dealmaking czar, James Lee. The firms declined to comment.
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