Posted on 16-1-2003
AO
Hell
By David Usborne in New York, 14 January 2003, The Independent,
UK
(photoshows Steve Case)
Steve Case, the founder of America Online, stunned the world
by announcing
his intention to buy Time Warner. That was three years ago.
He was the very
embodiment of the all-conquering new media. But today he stands
for
deflated fortunes and unvarnished humiliation.
Mr Case is stepping down as chairman of AOL Time Warner. His
resignation
late on Sunday was a surprise to no one, after months of disgust
on Wall
Street with his performance at the head of the huge corporation
he created.
But it is a significant moment. The humbling of the internet
warriors is
now complete.
Mr Case's story is one of monstrous hubris and a rapid fall
from grace.
Nothing about the merger, which was completed in January 2001,
had gone
according to plan. Indeed, the man left in charge of AOL Time
Warner,
Richard Parsons, is widely expected to use Mr Case's departure
to drop the
AOL initials from the company name. He may even sell the AOL
unit and
return Time Warner to what it was.
Timing, good and bad, also played a part in the tale. When Mr
Case, 44,
revealed his intention to buy Time Warner, the internet boom
was at its
peak; AOL's sky-high valuation gave it the paper wealth to make
the $156bn
(£97bn) offer. Never mind Time Warner's revenues were four times
those of AOL.
It was a daring move, to put it mildly. Many players in the
old media
universe that Time Warner epitomised were privately appalled.
Yet, it
seemed almost inevitable as well. AOL had for years held investors
in its
thrall as its stock price had scaled higher and higher. There
was no
turning back the new technology tide and the merged AOL Time
Warner would
rule.
By withdrawing, Mr Case – who will remain on the board and co-chair
the
company's strategy committee – is acknowledging what Wall Street
and many
of his co-directors have known for many months. The marriage
has proved
disastrous.
Just look at the merged company's stock performance. In May
2001, the
company was worth $260bn (£162bn). Now it stands at about $66.5bn
(£41bn).
AOL Time Warner's stock has plunged 54 per cent in the past
12 months alone.
He was not forced out. But he saw the writing on the wall. Several
other
high-profile members of the AOL Time Warner board have been
noisily
campaigning for his removal since last summer, among them Ted
Turner, the
founder of CNN. To stay on, Mr Case faced a bruising battle
in the run-up
to the shareholders' annual general meeting in May.
"Some shareholders continue to focus their disappointment with
the
company's post-merger performance on me personally," he said
in a
statement. "I recognise a lot of people have bet on this company
and are
disappointed by the results. But it's never over until it's
over ... In the
long run I really do believe we will be able to capitalise on
the promise."
He said he reached his decision over Christmas. A spokeswoman
for Mr Case
said: "He was aware that there had been some swirl about whether
he should
stay a few months ago. 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. Frankly, he wanted the company to be able to
move forward
without being distracted."
The merger did provide a boon, at least, for the original shareholders
in
AOL who otherwise would have undergone the same kind of pain
most other
internet investors suffered when the hi-tech bubble burst in
2000 and 2001.
And Mr Case is still an extremely wealthy man. At current prices,
his
common AOL stock should be worth about $171m (£107m). In recent
years, he
has repeatedly cashed in stock options. In 2001, just after
the completion
of the merger, he exercised options worth $127m (£79m).
While his place in history is assured, Mr Case steps down with
the cloud of
the merger's failure clinging to him. But he leaves reluctantly.
"This
decision was personally very difficult for me, as I would love
to serve as
chairman of this great company for many years to come," he said.
"As an
architect of the merger I have felt it was important that I
stay the course
as chairman and help get things on track."
Mr Case is a persuasive personality and was long the most enthusiastic
advocate of the internet. He made a compelling case for the
marriage with
Time Warner and sold it to the chief executive of Time Warner,
Jerry Levin,
who became the new company's chief executive.
The two men pedalled a vision whereby Time Warner would become
infused by
the new media savvy of AOL. And AOL, which had introduced most
Americans to
e-mail and instant messaging, would be the engine of the new
group's
growth. Instead, AOL became an albatross, dragging the company
down. By the
end of 2001, Mr Case and Mr Levin were forced to concede that
their
forecasts had been grossly awry and Wall Street punished the
stock royally.
Rumours of sour relations between AOL and Time Warner personalities
persisted. The promise of advertising synergy between the partners
never
materialised.
The unraveling of the marriage began quickly, first with the
resignation of
Mr Levin in December 2001. He departed last May to be replaced
by Mr
Parsons. Then last summer Robert Pittman, the former president
of America
Online, also resigned, setting the stage for a reshuffle of
senior
executives that saw old Time Warner hands taking over most of
the
leadership positions.
With Mr Case's demise, the influence of AOL executives on the
merged
company's day-to-day management will be almost gone. "Case's
departure is
the final step in new media's loss of control over Time Warner,"
Dylan
Brooks, a senior analyst for Jupiter Research, said yesterday.
Mr Case is not the first giant of the internet boom to crash-land.
Others
who showed similar bravado only to fall include Jean-Marie Messier,
the
former chairman of Vivendi Universal, and Thomas Middelhoff
from Bertlesmann.
Mr Case made several mistakes, not least his decision to take
a hands-off
approach to managing the new company in the first months after
the merger.
His near-invisible profile triggered rumours on Wall Street.
Some
sympathised with him, as he found himself distracted in those
early months
with the serious illness of his older brother, investment banker
Dan Case,
who died in June last year.
But more recent attempts to involve himself seemed only to annoy
senior
executives, who complained that he was meddling too much.
But to take too much away from Mr Case would be a mistake. He
was 26 when
he first recognised the power of the internet and founded the
company that
would become America Online.
Mr Case, who grew up in Hawaii before moving to North Virginia,
can be said
to have introduced most of us to the internet, to e-mail and
to instant
messaging.
And while AOL's revenues have been falling for two years, it
still remains
three times the size of its nearest rival in the internet portal
business,
Microsoft's MSN service.
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