Case's resignation may cause AOL Spin off


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NEW YORK (Reuters) - The resignation of AOL Time Warner Inc. Chairman Steve Case opens the door for a spin-off of America Online, or a name change to reduce the prominence of the media giant's Internet division.

Case, who headed America Online before its $106.2 billion takeover of Time Warner, was the last of the deal's architects to remain at the top of the company until his resignation on Sunday.

Some shareholders have been calling for months for the merger to be unwound or at least for AOL to be dropped from its name, and a source familiar with the matter said both ideas were now holding more sway at the company.

The ideas have been the subject of discussions at the company, but neither idea is actively in the works, the source said.

Shares of AOL Time Warner, which have fallen about 70 percent since the merger was closed in January 2001, rose 15 cents to $15.03 on Monday, the day after Case's resignation.

"Wall Street seems intent on getting this company broken up and with that in mind it's going to be a tough fight. Now it has to prove this merger deserves to survive," said Gary Arlen, a longtime AOL watcher and president of Arlen Communications. In a sign of further turmoil, the company said Walter Isaacson was resigning after about 18 months as the head of its news network, CNN, which has slipped in the ratings behind Fox News.

Isaacson would be replaced by Jim Walton, president and chief operating officer of CNN News Group, a CNN spokeswoman said.

It was not clear if Isaacson's departure was linked to Case's.

The America Online unit, once the company's crown jewel, quickly became a weak link as it suffered a sharp slowdown in advertising and subscriber growth and federal probes into its accounting practices that led to a restatement of results.

Its weakness offset strength at the traditional media businesses such as film, cable networks and cable systems, raising the ire of many Time Warner employees and investors, who have watched their stock options and investments evaporate.

"I think (Case's resignation) opens the way to a name change and I hope it happens. A spin-off depends on the market conditions and how AOL performs and whether the new strategies are implementable," said Hal Vogel, head of Vogel Capital Management and veteran media investor.

RECHARGING GROWTH A PRIORITY

Sources familiar with the situation said recharging growth would be a higher priority than removing AOL from the AOL Time Warner name or a spin-off. But they added there was little reason for the board not to consider such moves if investors continued to advocate it.

AOL Time Warner executives have said there are no plans to change the name and a spin-off is not being considered, a company spokeswoman said on Monday.

But some on Wall Street said a spin-off, if it happens, would likely come later rather than sooner to give the new team at America Online about a year to see if their new strategy of focusing more on broadband and paid services pans out.

NO FUNDAMENTAL STRATEGY SHIFTS SEEN

Most analysts said they do not expect any shifts in fundamental company strategy as a result of Case's departure, adding that it was more symbolic than anything else because Case has not been active in daily operations.

Investors said Case's exit would be positive because he has been a reminder to many Time Warner employees and investors of the merger, fueling resentment.

"It gets the company into healthier political situation and this clears the air a bit," Vogel said.

Reaction to Case's departure was mixed. Some at America Online said they realized Case was part of the company's woes but also that he was revered as a visionary. Meanwhile, those at the film, music and cable networks divisions said Case's presence had not been felt recently.

"Once it was clear AOL was in trouble, the AOL arrogance had subsided significantly. They've been humble for a while now," said a source familiar with the company's entertainment units. "Case was not much of a presence to begin with. He sort of came out of retirement to announce he was leaving."

Insiders said there are few Case allies left for a mass exodus of America Online veterans. AOL Vice Chairman Ted Leonsis and David Gang, executive vice president of product marketing, are among the few online executive still there.

But both have become more active recently, taking a key role in reviving the online unit and are unlikely to leave, sources familiar with the situation said.

Former Chief Operating Officer Robert Pittman and former Chief Executive Gerald Levin, also key architects and vocal proponents of the merger, left under pressure last year. The top ranks are now in the hands of Time Warner veterans.

As for who will fill Case's shoes as chairman, investors said the company may look to Parsons or tap a nonexecutive chairman. Outspoken Vice Chairman Ted Turner, the company's largest individual investor, has been one candidate mentioned.

But not all would favor of such a decision: "I would assume they find someone from the board who is not controversial," said Morris Mark, general partner at Morris Asset Management.

Viacom Inc. President Mel Karmazin's name has also been mentioned.

http://www.washingtonpost.com/wp-dyn/artic...-2003Jan13.html - Source :no: AOL's gonna die...LOL Jk

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