A Business section graphic in some editions yesterday misstated the value of shares that Time Warner Inc. Chairman Gerald Levin could purchase with the stock options he held as of Tuesday. The figure should have been $499.5 million 00,000. The graphic also misstated the number of options held by America Online Inc. President Robert W. Pittman. According to the most recent public filings, he holds 15,552,000, which could purchase shares worth about $1 billion. (Published 01/13/2000)

A key architect of the merger of America Online Inc. and Time Warner Inc. said today that the merger would likely result in a significant restructuring of the technology upstart and the media powerhouse.

In the past, at both AOL and Time Warner, newly acquired divisions and companies have kept their own leadership and cultures, rather than being absorbed into one amorphous entity. But Kenneth J. Novack, AOL's vice chairman, suggested in an interview that this time things would be different.

The details of what AOL Time Warner will be are being decided by Novack and three other members of an "integration" team: AOL President Robert W. Pittman, Time Warner President Richard D. Parsons and Time Warner Digital Media chief executive Richard J. Bressler. Novack said he expects the group to have its first official meeting in a few days and to solicit advice from other executives at the two companies.

Novack said he could not yet be specific about the planned restructuring, but "it's pretty significant."

"Our goal is to create a truly new company that is not about what AOL can do for Time Warner or the other way around," Novack said. "It is about a new paradigm, the creation of a totally new business."

AOL's Northern Virginia campus will play a critical role in the new company, Novack said. While the merged entity's official headquarters will be in New York, board of directors meetings will alternate between New York and Dulles. Chairman Steve Case will remain in Dulles and so will many other AOL executives.

The merger could bring an enormous windfall to AOL's 12,100 employees, who would get accelerated access to stock option profits worth a total of about $12.4 billion, according to company officials. The employees would be able to exercise their options one year after the deal closes, under a "change of control" clause in AOL's stock plan that speeds up the vesting process.

As the plans to integrate the two companies get underway, industry insiders say one person to watch is Pittman, who will be co-chief operating officer of the new company with Time Warner President Parsons. A former Time Warner executive who launched MTV and who has effectively run AOL on a day-to-day basis since he became chief operating officer in 1997, Pittman, they say, is the bridge between old media and the new.

The group expects to come up with a proposal sometime before the deal is closed late this year.

As observers speculate about how the combination will cause the two companies to change their structure and corporate cultures, some see a sign of things to come in the personal transformation of Time Warner chief executive Gerald M. Levin. Not long before the big announcement he made Monday with AOL chief executive Case, Levin shaved his mustache--a trademark for 35 years. Then, he appeared at the press conference uncharacteristically without a necktie.

In effect, the tone of the merger will be set by Levin, who will run the day-to-day operations while Case moves to long-term strategic planning. Levin doesn't go for the glitzy life preferred by many media moguls. He's known as serious, even professorial, running what in many ways is a traditional and bureaucratic company.

And it's never easy to predict what he will do. Just when everyone thought a Time Warner merger with Turner Broadcasting Co. would blow up in his face, he managed to win over the quixotic Ted Turner and come out on top.

He's not universally popular.

"He's incredibly persistent in a way that can move to the level of intransigence," said one source who is close to him. "He's not like President Clinton. He doesn't need to be loved by everybody."

James V. Kimsey, AOL's co-founder and a former chairman, said he believes one of the most daunting challenges the two companies face is to figure out if and how to reassign senior management positions.

"They certainly got the best picks of the NBA," he said, "and the trick is now to make them work together as a team."

Ted Leonsis, president of AOL's Interactive Properties Group, said he has for now been told to "stay the course" and that it's business as usual. He said he has no idea what job he'll have in the merged company.

"I think this is where most people are--you are on a team and you do whatever the coach says. And at this point he's saying, 'Just keep doing what you are doing and things will work out,' " Leonsis said.

But, he said, "I know I'm not movin'."

A major concern about the merger has been what is perceived to be the clash between the corporate cultures of the 'go-go' Internet company versus the staid media giant.

Company insiders, though, say the difference is in many ways the reverse of what one might expect.

AOL is not your typical jeans-and-bare-feet upstart. Unlike Yahoo, where people have titles like "Diva" and "Head Yahoo," AOL corporate culture in its Northern Virginia offices is almost government-like, employees say, even though the casual dress code may make it seem more laid-back. The rooms are filled with people sporting the titles of manager, vice president and senior vice president.

Time Warner, on the other hand, is not entirely the old-fashioned outfit people might think. It has no one dominant corporate culture, especially given the small size of its corporate headquarters office in New York City and how far apart its holdings--from CNN in Atlanta to its vast network of local cable stations--are spread. While some of its Time Inc. holdings may be very traditional, others, such as Warner Bros., lean more toward the artsy, creative side.

"Time Warner has so many different components that there's no way you can instill one corporate culture throughout," said George Davis, head of the Boston office of Egon Zehnder International, an executive search and management consulting firm.

As a result, some management consultants believe the new company will have to face the hurdle of warring tribes.

"For the first nine or 10 months, the question will be: "'Who gets to win?'" said one consultant. Not just which corporate honchos will have the most control in the executive suite, but which businesses will benefit most from the merger. "The record guys think they'll benefit most from using AOL; AOL thinks they'll benefit from Time Warner's products. Everybody thinks they're going to get the most out of using the other."

A huge variable, industry analysts say, will be how well big names like Case, Levin, Pittman and Turner will be able to get along.

"On more occasions than investors probably care to remember, the high point of watershed [acquisitions] has often been the press conference--after that it's all infighting, politicking, culture-clashing, loss of cohesiveness, identity and competitiveness, value deflation, and ultimately, brain drain," said Merrill Lynch & Co. analyst Henry Blodget in a report detailing his major concern.

Even though AOL is acquiring Time Warner, the employee stock option clause is invoked because the merger would leave AOL shareholders with less than 60 percent ownership of the new company, said AOL spokeswoman Tricia Primrose. The proposed merger calls for AOL shareholders to own 55 percent and Time Warner shareholders to own 45 percent.

At the end of June, AOL had outstanding options for 400 million shares, 238 million of which had not yet been vested, according to an analysis by Bloomberg News. The $12.4 billion that AOL employees could gain in profits is based on today's closing share price of $65 and could change dramatically as AOL's stock rises or falls.

Primrose said that any employees already scheduled to vest earlier than one year after the deal closed would retain that date.

Like many Internet companies, AOL has used options as a way to attract workers and keep them. "Certainly options are an important part of [the compensation package] because you tie the interest of the employee to the interest of the company," said Primrose.

Staff writer Shannon Henry contributed to this report.

CAPTION: Steve Case will stay in AOL headquarters, above, but the new firm will be based in New York.


(This graphic was not available)