Case, 47, said in a statement today that his resignation is effective immediately. Case, who co-founded AOL, said he will remain one of the largest shareholders of New York-based Time Warner, the world's biggest media company.

"It puts more distance between Time Warner and the horrendous deal that was made and the people who propagated it," said Hal Vogel, chief executive of New York-based Vogel Capital Inc. and author of "Entertainment Industry Economics."

The decision by Case may help alleviate some pressure on Time Warner Chief Executive Officer Richard Parsons, who is being pushed by billionaire shareholder Carl Icahn to make changes to boost the shares. Icahn this month targeted the board, saying 12 of the 15 directors voted in favor of the AOL transaction, which caused $100 billion in losses and prompted shareholder lawsuits and a Securities and Exchange Commission investigation.

"I continue to have a special pride and passion for AOL, and I strongly believe that AOL — once the leading Internet company in the world — can return to its past greatness," Case said in the statement. He said he is stepping down to spend more time working on his new investment fund, Revolution LLC.

Revolution LLC owns several businesses including Wisdom Media Group, a company that makes TV programs on yoga, acupuncture and shiatsu massage; a high-end spa outside Tucson, Ariz., called Miraval and Exclusive Resorts, a company that markets luxury vacation rentals.

Since the 2001 merger, Time Warner stock has lost two-thirds of its value.

Shares of Time Warner rose 8 cents yesterday to $17.83 in New York Stock Exchange composite trading. They have fallen 8.3 percent this year.

"We have great respect for his long record achievement — as a co-founder of AOL to a valuable member of our board," Parsons said of Case in a separate statement.

The decision by Case leaves two former AOL directors on the board: Miles Gilburne, a former senior vice president, and James Barksdale, the former CEO of Netscape Communications Corp.

"They should resign," said Vogel, who sold his Time Warner shares earlier this year. "Where is their embarrassment? Why are they still in position of influence and collecting directors' fees?"

According to SEC filings, Case owns about 0.3 percent of the company's shares, about half the size of the stake owned by CNN founder and Time Warner board member Ted Turner.

In 2003, Case stepped down as chairman of Time Warner amid shareholder lawsuits and an SEC investigation into accounting irregularities at AOL. He said at the time he quit his post to avoid being a distraction for the company, which also owns People magazine, the Warner Bros. studio and CNN.

Settling Suits

Time Warner this year agreed to pay $510 million to settle the government probes into AOL and $2.4 billion to end a shareholder lawsuit claiming AOL inflated its revenue in 2000 to help close the merger.

Parsons is under pressure to increase sales and profit at the online unit, which lost 6 million Internet-access subscribers in the past three years.

AOL, now run by Jonathan Miller, unveiled a revamped aol.com Web page in July with music and video to attract advertisers and tap into the booming online ad market.

In the third quarter, AOL's revenue fell 4.7 percent to $2 billion as a 29 percent jump in ad sales failed to compensate for losing about 800,000 subscribers, according to the average estimate of five analysts polled by Bloomberg News.

"Over the past few months, I have been pleased to see a renewed focus on AOL at Time Warner, and the emergence of so many strategic alternatives," Case said.