Steve Case, the embattled, visionary founder of America Online, resigned under pressure as chairman of AOL Time Warner Inc. last night, saying he would "love" to remain in the job but that his presence atop the world's biggest media company had become a damaging "distraction."
In an interview with The Washington Post, Case said he feared that as the company's annual meeting in May approached, disgruntled shareholders would seek to oust him, a scenario that would provoke a divisive fight. After consulting with close friends and his wife, Case said he reluctantly concluded Friday night that it would be better to resign as chairman, effective in May, than to drag the company through a boardroom brawl.
As America Online's prospects soured in the aftermath of the company's $112 billion merger with Time Warner in January of 2001, a deal devised by Case, he has been struggling to maintain his status in the boardroom. Media maverick Ted Turner, the company's largest individual shareholder, and other major stockholders have sought to oust him for months, as the value of their stock in AOL Time Warner plummeted by billions of dollars once the deal failed to live up to its lofty expectations.
Turner and others have privately accused Case of acquiring Time Warner with America Online stock that was inflated in value, even though he knew that its business was faltering. It didn't help any that Case, personally, had sold several hundred million dollars' worth of America Online stock in the years before the merger. One major institutional shareholder asked Case last year to resign, a request he rebuffed but said he reconsidered over the past month once it became clear that a bruising battle was looming.
"I love the company, and I love being chairman," Case said last night. "This is a difficult environment. Whether it is right, or not right, or fair or not fair, is not relevant. Given the risk of greater distractions as we headed toward May, I concluded, on balance, that even though this was a difficult personal decision, that it was the best thing for me to do."
For thousands of AOL employees in Northern Virginia, Case's resignation will symbolize the waning influence of America Online executives, as leaders of Time Warner take charge at a time when the online business is entering a rocky period of spending cuts rather than growth. He has been synonymous with America Online since its founding and his resignation marks the end of an era where he maintained extraordinary influence over the online business.
Case, 44, said his decision was influenced by the recent decision of former FBI director William Webster to step aside as chairman of a new accounting panel amid contretemps. Case said he has enormous respect for Webster and that the sequence of events made him rethink his decision to remain as chairman.
"In the current environment, there is negativity and cynicism," Case said.
Franklin Raines, a member of AOL Time Warner's board of directors, offered a different perspective. "This is a world in which everyone has to be held accountable," Raines said. "He, and everyone in management, in putting this merger together as executives, have to take responsibility that it hasn't happened the way we wanted it to."
Case said even though he thought he could win a fight to remain chairman, it could be a fleeting victory since any such fight would keep AOL Time Warner's stock price depressed. Case, the company's second largest individual shareholder, owns 35 million shares worth nearly $500 million.
Case said no shareholder or director asked him to step aside recently. However, when he called Time Warner chief executive Richard Parsons and other directors Saturday to inform them of his decision, nobody sought to talk him out of it. Case said it was important to him that after his resignation as chairman, he would remain a member of the company's board and focus on long-term strategy.
"I am stepping down, but not walking away," Case said. "I still believe the merger was a good idea for AOL and Time Warner even though I understand the conventional wisdom at this moment is otherwise. When all is said and done, I believe people will see the logic of bringing these companies together."
Case's announced resignation is the latest in a series of high-level departures from the company following a deal which wiped out tens of billions of dollars in shareholder value and left Time Warner employees seething over the plunge in the company's stock price. The pressure on Case to step down increased last summer after a series of Washington Post articles raised questions about whether America Online had artificially inflated its revenue before and after the merger.
The articles prompted the Securities and Exchange Commission and the Justice Department to launch investigations, which are still on-going, and led AOL Time Warner to restate $190 million in revenue that it said was improperly recorded. The company is cooperating with federal investigators. Case is not a target of the Justice Department probe, sources said, and his departure does not appear linked to any imminent action.
Parsons described Case as "the guiding genius behind America Online" and one of a handful of "pioneers" who "grasped the implications of online media."
AOL Time Warner is the leader in news magazines, with People, Time and Sports Illustrated; a leader in cable programming, with HBO and CNN; a hot Hollywood studio through Warner Brothers and New Line Cinema; and the nation's second biggest operator of cable television systems. All of its major divisions are performing well except Dulles-based America Online, which connects 25 million subscribers in the United States to the Internet but is suffering from a steep drop in advertising, sluggish subscriber growth and increased competition.
Case, the missionary icon associated with America Online, conceded that forces had conspired in unexpected ways to force him out. "I did not anticipate this," he said, "but a lot of things have happened over the last three years that could not be anticipated and you have to deal with the realities of the situation."
Staff writer Alec Klein contributed to this report.
AOL Timeline 1989: America Online service is launched by Quantum Computer Services Inc., which later becomes America Online Inc. March 19, 1992: America Online goes public on Nasdaq Stock Market at initial price of $11.50 Aug. 16, 1994: AOL service reaches 1 million members. Dec. 22, 1998: Standard & Poor's adds AOL to S&P 500 index. Dec. 1999: AOL stock price surpasses $90, its highest price to date. Jan. 10, 2000: America Online and Time Warner announce merger agreement. Dec. 5, 2001: AOL Time Warner chief executive Gerald M. Levine announces resignation. July 17, 2002: The Washington Post reports on series of unconventional advertising deals that boosted revenue before and after the merger. July 18, 2002: AOL Time Warner chief operating officer Robert W. Pittman resigns. July 24, 2002: AOL service exceeds 35 million members. July 25, 2002: Securities and Exchange Commission opens investigation into AOL Time Warner's accounting for several unorthodox advertising deals. Aug. 1, 2002: Justice Department announces criminal probe. Oct. 23, 2002: AOL announces plans to revise financial results after finding it improperly inflated $190 million in advertising deals. Dec. 2, 2002: AOL Time Warner revises strategy for online unit, and says ad sales may not rebound until 2004. Jan. 10, 2003: AOL Time Warner closes at $14.88 a share. Jan. 12, 2003: Steve Case announces resignation as chairman of AOL Time Warner.