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The Honolulu Advertiser
Posted on: Monday, January 13, 2003

AOL's Steve Case resigns as chairman

By David A. Vise
Washington Post

WASHINGTON — 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."

Steve Case, a Punahou School graduate, was described as "the guiding genius behind America Online" by Time Warner chief executive Richard Parsons.

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In an interview with The Washington Post, the Honolulu-born 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 his close friends and 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 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 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 its business was faltering. It didn't help 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 during the past month once it became clear 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."

Case is a majority shareholder in Maui Land & Pineapple Co. Inc. He recently purchased additional shares in the company, bringing his total holdings to 2.98 million shares.

Case profile

• Age: 44

• Wealth: Assets exceed $1 billion

• Holdings in Hawai'i: Majority shareholder of Maui Land & Pineapple Co. Inc. at 2.98 million shares; owner of former Lihu'e Plantation land

Case also owns former Lihu'e Plantation land and Grove Farm Co. property on Kaua'i, giving him control over much of the island's undeveloped urban-zoned acreage.

A Punahou School graduate, Case has been ranked among the wealthiest Americans with assets exceeding $1 billion.

Case, 44, has been synonymous with America Online since its founding, and his resignation marks the end of an era in which he maintained extraordinary influence over the online business. Leaders of Time Warner have taken charge as the online business has entered a rocky period of spending cuts rather than growth.

Franklin Raines, a member of AOL Time Warner's board of directors, said: "This is a world in which everyone has to be held accountable. 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."

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 stories prompted the Securities and Exchange Commission and the Justice Department to launch investigations, which are ongoing, and led AOL Time Warner to restate $190 million of revenue that it said was improperly recorded. The corporation 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 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.