Since Osama bin Laden isn't actually within our borders, as far as we know, the person with the biggest image challenge in America may be Steve Case. Certainly in the corridors of Time Warner, the company he enticed into merging with his own America Online three years ago, there is little to choose between these two public enemies. With his resignation as chairman of AOL Time Warner last month, followed shortly by the company's announcement that it lost nearly $100 billion last year, Case becomes the fall guy for what is universally regarded as one of the great business disasters of all time. And more than that, he is the official symbol of almost every deplorable recent business-world development: the dot-com bubble (or, rather, the collapse of the dot-com bubble -- no one minded the bubble itself); pointless shuffling of corporate assets; executives who enrich themselves at the expense of stockholders and employees; stale cheese danish in the company cafeteria; and so on.
The dynamics of reputation are mysterious. Steve Case is on the verge of being stamped as the Michael Milken of this decade, even as the Michael Milken of an earlier decade -- Milken himself, a convicted financial criminal -- is skillfully rehabilitating his name. Case may be crying all the way to the bank, in Liberace's immortal words, but it's still worth pointing out that this is very unfair.
First, as others have noted, any complaint former Time Warner shareholders may have is with the management that sold them out too cheap. And former shareholders of AOL have no valid complaint at all, at least about the merger itself. In a landscape of dumb decisions based on delirious fantasies about the Internet, the one decision that stands out as brilliant, even in hindsight, was Case's. At the very peak of the dot-com frenzy, when others (including everyone from small investors to the executives of Time Warner) were madly trading hard cash and hard assets for airy Internet promises, Case was cashing in the airy promises for hard cash and the hard assets of an established business. And he was doing so on behalf of his shareholders, not himself. At the time of the deal, January 2000, AOL had revenue of $4 billion a year and Time Warner had revenue of $26 billion. Yet AOL got 55 percent of the combined company.
Some people said right away that Time Warner was getting ripped off, but this wasn't as obvious as it seems in hindsight. Time Warner management deserves at least a small dollop of sympathy, and Case deserves a bit of credit for courage. Despite the giant gap in revenue, the total value of AOL's shares in the market was actually double the total value of Time Warner's. By that standard, it was AOL getting ripped off by settling for only 55 percent of the combined company. And indeed, when the merger was announced, Time Warner's stock immediately soared 39 percent, while AOL's went down.
Soon enough, of course, the companies were going down, down, down together. Shares in the combined company are worth less than a fifth of what they were at the time of the merger deal. But the actual terms of the merger cannot be blamed for this, since they affected only the value of the two companies relative to each other, not the value of the combined company relative to the outside world. You might think in retrospect that a little less chatter about synergies and a little more attention to converting customers from dial-up Internet access to broadband would have served even the former AOL shareholders better. But the main reason AOL Time Warner plummeted is that every high-tech and media company plummeted. The entire Nasdaq is down by more than two-thirds.
Case also makes a strange poster child for CEO greed. By the admittedly absurd standards of today, his greed is fairly modest. Case didn't even make the Forbes 400 list of the richest Americans until 1999, with an estimated net worth of $1.5 billion, which was also his peak, and he lasted just three years before falling off the list again in 2002. Among those richer than Case in bubble-year 1999 were David Filo of Yahoo at $3.7 billion and Jay Walker of the virtually forgotten Priceline.com at $4.1 billion.
It's true that Case has cashed in almost $500 million of AOL Time Warner shares and options since January 1999, but he is far from the worst offender in this regard. He still owns 18 million shares (plus a ton of options), which he could have sold but didn't. Last year he even bought a million shares on the open market. Case's successor as chairman, Dick Parsons, sold 700,000 shares in 2001, when they were worth about $50 a share, or $35 million, which was most of his holdings at the time.
But the case for Case is not entirely defensive. He surely deserves more credit than he's getting now for his role in bringing the online revolution to the masses. He staked his career on this at a time when few people knew anything about it and most of those who did were scoffers. He is arguably more responsible than any other person for introducing millions of ordinary, non-techy people to the joys of cyberspace. In doing so, incidentally, he also created a real business with more than 30 million real people paying up to $23 a month in real money. You could say he brought the magic of the Internet to the real world and a bit of real-world sobriety to cyberspace. In fact, I would say it. But not around anyone from Time Warner.