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A Times Editorial

A merger's deflation

© St. Petersburg Times
published July 21, 2002

Robert Pittman and Gerald Levin got better than they deserved. As two of the executives most responsible for the inflated price tag and overblown rhetoric attached to the merger of America Online and Time Warner, they earned their ungraceful departures from what is left of the combined company.

Last week's forced resignation of Pittman as chief operating officer of AOL Time Warner led to the ascendancy of two executives who were openly skeptical from the start about the lofty promises of new-age synergy that accompanied the merger. The changing of the guard clearly puts Time Warner -- an old-media conglomerate with real assets -- back in control of a company that had lost its way in search of imaginary valuations.

AOL Time Warner may be regaining its focus, but it will not soon regain its heft. The company's market capitalization is now only about one-sixth of what it was in January 2000, when America Online and Time Warner announced their plans to merge. Pittman and Levin, the former Time Warner chief executive who called AOL the "crown jewel" of the merged company, may have unwanted time on their hands, but they are still millionaires many times over. But many less fortunate Time Warner employees and investors have been badly damaged as the company stock has plummeted.

In fact, the stock has been so badly beaten down that it may now be worth much less than the sum of the company's parts. Time Warner's consolidated strength in magazines, motion pictures, cable, music and other established media is as formidable as ever.

The real question facing the new corporate leadership is how AOL will fit into the mix. No one would dare call AOL the crown jewel of the company any longer, but it may find a more modest niche as a medium that can attract another dimension of readers and advertisers. That's a much more modest role than AOL founder Stephen Case, who still holds the title of chairman of AOL Time Warner, ever envisioned. But it gives AOL a shot at something many of its new-tech competitors failed to accomplish: survival.

The plummeting trajectory of AOL Time Warner's fortunes could serve as a cautionary tale for all those executives and investors whose longstanding economic principles were knocked from their moorings at the dizzying heights of the technology bubble. Given the broader crisis facing the markets, however, one more cautionary tale is the last thing Wall Street needs right now.

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