Case Closed At AOL Time Warner

Blamed by shareholders for AOL Time Warner's sharp fall in fortunes, Steve Case said he will step down as chairman of the conglomerate he helped create — a marriage of old and new media first hailed as revolutionary but now struggling for a future.

Case's departure means the company's leadership will be without any of the key architects of the blockbuster merger of America Online and Time Warner in 2001. The company said Sunday he would step down in May.

In a brief statement, Case said he 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," he said.

"Steve Case has been on the hot seat for many, many months if not years because of AOL Time Warner's falling stock prices," said CBS MarketWatch editor John Friedman. "The stock price has fallen by about half its value in the past year or so, which means somebody has to take the fall for this and it's going to be Steve Case."

Analysts had speculated that an accounting scandal, along with anger about a drop of more than 60 percent in the company's stock price, would eventually force Case to resign. And his decision 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 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 was not forced out. She 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 remain on the company board and continue to co-chair its Strategy Committee, although it remains unclear how much of an influence he — or his old company, America Online — will have on AOL Time Warner.

"He'll stay as a board member but so what? It's only a matter of time," said Friedman. "This company has a lot of board members that used to be running divisions — Ted Turner is a board member, and he ran CNN. It's really a question of whether America Online will stay part of Time Warner right now. The movement on Wall Street is that AOL Time Warner, the parent company, just dumps America Online as fast as possible and gets it out of the way."

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.

"It's hard to imagine anyone from the America Online side will have much of a say in things," said Friendman. "The power of the company will be in Time Warner."

"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.

The announcement also raises questions about whether 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 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.

AOL's 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 firms. 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.