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| AOL co-founder Steve Case |
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NEW YORK (FORTUNE) -
Steve Case, AOL's co-founder and a chief architect of its 2001 merger with Time Warner, is now calling for a breakup of the media giant. But as recently as October, he defended the merger to FORTUNE. On a sunny October morning, Case, who was sitting on a tan leather couch in his Washington, D.C. office, insisted the deal still made sense.
"Strategically, it was the right thing to do for AOL and the right thing for Time Warner," said Case. "I think the idea of the merger in terms of AOL being able to leverage Time Warner cable distribution and content to accelerate the transition to broadband was a good idea. And I think Time Warner being able to leverage AOL as a platform to move into what is inevitably a more digital business was a good idea."
Case certainly did very well by the deal: From 1999 through 2002 he sold stock valued at $475 million. But the merger has turned out to be a disaster for the company. AOL Time Warner, valued at about $290 billion after the merger announcement in January 2000, shed more than $150 billion of that market value by January 2002. The company wrote off almost $100 billion in goodwill, settled Securities and Exchange Commission and Department of Justice investigations for $360 million, and set aside $3 billion to resolve shareholder lawsuits.
Now, Case says it's time to "undo" the merger by splitting Time Warner into several independent companies and allowing AOL to set off on its own path. In fact, Case reveals in an op-ed piece in Sunday's Washington Post that he had proposed to the board back in July that it was time to split Time Warner (Research) into four freestanding companies -- Time Warner Cable, Time Warner Entertainment, Time Inc., and AOL -- each with its own strategy, stock, balance sheet, management team and board. (Like AOL, FORTUNE and CNNMoney.com are both owned by Time Warner.)
The reason, he writes, is simple: "Time Warner has proven to be too big, too complex, too conflicted and too slow-moving -- in other words, too much like a conglomerate -- to seize new opportunities."
So why didn't Case tell FORTUNE that he had proposed this to the board when we spoke with him in October? Case declined to talk to us Monday, so it's impossible to say. At the time, we were there to talk to him about Revolution, his new holding company for an odd mix of small health-care businesses, media ventures, and even a desert spa.
Perhaps he just didn't want to distract from his new venture, which he believes will "change the world." What's clear is that Case didn't appreciate getting peppered with questions about the merger -- one that devastated the company's stock and smashed more than a few retirement nest eggs.
Asked whether his portrayal of him as "the architect of the worst deal in history" was fair, Case shot his visitor a steely look. "There's no question I was the architect," he said. "It was my idea, and I was the principal champion. But time will tell how it plays out."
Asked whether the merger has turned out as planned, Case said there have been "some disappointments" and "missed opportunities," But he declined to elaborate. "I'm not about woulda, coulda, shoulda kind of stuff," he says.
He did say that "nobody, myself included, is happy about where the stock price is right now." But asked whether there are things he wishes he'd done differently, well, he didn't want to go there either. "I'm not going to get into what they are because I'm focused on the future, not the past."
Finally, asked whether starting Revolution is an expensive way to vindicate himself, Case couldn't have been clearer: "Maybe it's me, but I don't feel I need any vindication. I feel proud of the 20 years [I spent] building AOL. [It became] the most important company on the Internet and helped usher in an era where interactivity is now a part of daily life."
Well, it turns out that Case has been thinking about the past and himself quite a bit. As he writes in the Post, "As one of the largest individual shareholders in the company, with holdings worth more than $250 million, I obviously have a stake in seeing all of Time Warner do better. But, as one of AOL's founders, I also have a particular passion about its future."
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Think small when it comes to the AOL deal -- Click here.
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