Angst persists about AOL; Time Warner shareholders vent

Sun, 05/23/2004 - 8:00pm

The Atlanta Journal-Constitution

May 22, 2004; Saturday Home Edition

From Lexis Nexis

Time Warner Inc. has dropped the AOL part of its name, but it found Friday that it still can't shake the ghost of one of the most maligned business deals in corporate history.

Time Warner's annual shareholder meeting here was less rancorous than in past years, when angry investors railed about the January 2001 merger with America Online that lopped about two-thirds of the value off Time Warner's stock.

Yet after a year when other Time Warner subsidiaries could bask in their successes, what to do about the Internet division was the still most common question among the 500 or so shareholders who attended the meeting at Warner Brothers studios in Burbank, Calif.

The world's biggest media company is taking steps to solve some of AOL's revenue and management problems, and it has a plan in place to reduce its reliance on the declining dial-up Web service.

Still, some shareholders asked Time Warner executives whether they should sell the Internet company. Others asked when AOL was going to start pulling its financial weight. Still others wanted to know how long the debt and other remnants of the $114 billon merger were going to continue to affect Time Warner's bottom line and its stock.

Time Warner Chairman Richard Parsons said the company plans to "stay the course" with AOL and predicted it would start growing again soon.

"I can appreciate there's still a residual sense of disappointment among shareholders that the merger didn't work out quite like we all hoped," Parsons said. "I can tell you this, though," he added. "AOL ... is in the process of not only righting itself but becoming a serious engine of growth going forward."

The biggest potential for Time Warner's growth in the short term, however, may be in its cable business, Parsons said. The company plans to start offering telephone service to its cable subscribers, and also plans to expand its reach, possibly by acquisition.

Parsons reiterated earlier statements that Time Warner could be interested in buying bankrupt cable operator Adelphia Communications Corp. if the price is right but declined to comment further.

"What I can say is this," he said. "We're really very high on the cable business. [It] is one of the really big and mature businesses out there that is growing."

Improvements to Time Warner's balance sheet could help with future acquisitions. Last year the company reduced its debt from about $30 billion to about $19 billion. It also raised $2.6 billion by selling off its music division earlier this year.

The company also expounded on success in its movie and television businesses, including the blockbuster "Lord of the Rings" trilogy and its forthcoming "Harry Potter" sequel, as well as ongoing hits carried by its Turner Entertainment Networks, HBO and CNN subsidiaries.

As for AOL, Parsons said Time Warner's board of directors had a strategy meeting Thursday where they considered "in some depth" what to do with the Internet company, and decided that it should continue trying to nurture it.

Among Time Warner's directors are AOL co-founder Steve Case and on the opposite side, media mogul Ted Turner, who seemingly derides Time Warner's merger with AOL every chance he gets.

While AOL's revenue dropped slightly in the first quarter of this year, Parsons pointed out that its operating income rose 20 percent. The company is still losing dial-up Internet service subscribers to high-speed broadband, but Parsons said AOL's expansion into broadband and other services is going well.

"We said last year we wanted to stabilize that business," he said. "We think we've got it stabilized, and we think it's poised for growth."

Parsons later told reporters he wasn't surprised about continued shareholder angst over the AOL merger. He predicted AOL will have to show "three or four quarters" of financial improvement before investors begin to realize Time Warner has the company's problems under control.

"It's too early to declare victory and say it's fixed," he said of AOL. "But we are seeing some improvements."


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