Case Wants to ‘Undo’ Merger

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Corporate raider Carl Icahn has an unlikely ally in his quest to break up Time Warner Inc.: former America Online Inc. and Time Warner chairman Steve Case.

In an essay printed in The Washington Post Sunday, Case -- who said he has never spoken with Icahn -- called for Time Warner to be split into four separate companies: Time Inc. (magazines), Time Warner Entertainment (Warner Bros., New Line Studios, Home Box Office Inc. and Turner Broadcasting System Inc.), Time Warner Cable and AOL.

Case, who resigned from Time Warner’s board of directors in October, said he brought the proposal of the split-up to Time Warner’s board in July.

“Although I played a key role in bringing AOL and Time Warner together six years ago, it’s now my view that it would be best to ‘undo’ the merger by splitting Time Warner into several independent companies and allowing AOL to set off on its own path,” Case wrote in the essay.

Case lamented the failure of Time Warner Cable to integrate its Road Runner high-speed-Internet service with AOL -- he said he had proposed doing away with the Road Runner name altogether in favor of the better-known AOL brand. He also criticized the company from transforming AOL, which was once the leading Internet company in the country, to its present state.

“Instead of propelling AOL to new heights, the association with Time Warner has weighed AOL down, while its competitors, such as Google and Yahoo! [Inc.], have made important strides forward,” Case wrote.

Case also called for a stop to any planned moves to separate the content end of AOL from the access business -- which he called a “split-the-baby option” -- or a joint venture with Microsoft Corp. to compete against Google.

“Each of these options would likely be a mistake,” Case wrote. “Any half-hearted move toward ‘liberating’ AOL is no more likely to succeed than the half-hearted effort toward ‘integrating’ AOL over the past six years. Given that Time Warner failed to capitalize on AOL's potential during a period when it owned 100% of AOL, it seems doubtful that a scenario in which it has a lesser, but still controlling, stake will work better.”

Case said that as a separate company, AOL could use its own stock as a deal currency to buy other Internet companies -- like it did before the 2001 Time Warner merger to buy ICQ and Mapquest -- and adopt an aggressive internal growth strategy without being hamstrung by bureaucracy or other corporate divisions.

Time Warner said in a prepared statement that while it respects Case’s views as a shareholder, the former director is off the mark regarding splitting up the company.

“As Steve is aware, these views have been carefully considered by Time Warner’s board and management, together with outside advisors, and we have concluded that there is no evidence that the steps he has proposed will improve shareholder value,” Time Warner said. “Our board and management have turned around the company, put it on a growth path and are committed to delivering true value to all our shareholders.”

Case said he owns about $250 million worth of Time Warner stock, or some 14 million shares, making him one of the company’s largest individual shareholders. Based on the 4.4 billion outstanding Time Warner shares, that works out to about a 0.3% stake in the company, which would give him little clout.

Icahn, who launched his opposition to Time Warner management in August, has, with three other partners -- Franklin Mutual Advisers Inc., JANA Partners LLC and SAC Capital Advisors LLC -- about 2.6% of Time Warner shares worth about $2 billion.

Earlier this month, Icahn said he had hired Lazard Ltd. as an adviser to look into possible scenarios for Time Warner, as well as a new slate of directors. Icahn has said that he intends to propose replacements for a majority of Time Warner’s board at its next annual shareholders’ meeting in the spring.

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