Levin Emerges on Top of Another Huge Merger

For the third time in 10 years, Gerald M. Levin finds himself in the thick of a massive “merger of equals” in which there’s a common thread: He comes out on top.

When Levin becomes chief executive of the combined AOL Time Warner, as planned, look for it to happen again.

Less publicly visible than such rivals as Walt Disney Co.’s Michael Eisner, Viacom Inc.’s Sumner Redstone and News Corp.’s Rupert Murdoch, Levin has deftly made his way through minefields of his own company and a media industry that for a long time was skeptical of his abilities.

Along the way, he’s defied numerous predictions of his demise. He cut loose executives with a toughness that contrasts with his quiet, introverted personality. In the end, he emerged stronger than ever as investors seemingly vindicated his bet on bulking up Time Warner’s cable systems and giving the company the “digital make-over” he wants.

“If there’s a nuclear explosion, I want to be standing next to him. He’s done a brilliant job, and now he’s at the forefront of digital convergence that will change the whole entertainment industry,” said prominent Hollywood lawyer Skip Brittenham.

So how would the 60-year-old Levin, who oversees the world’s largest media company, mesh with 41-year-old Steve Case, the entrepreneurial executive behind America Online?

Levin went out of his way to mention that it was Case who first suggested that Levin be chief executive. Realistically, there was no other choice. Levin would be the only one atop a gargantuan AOL Time Warner who could manage it for the foreseeable future.

His experience is unmatched at pulling off huge media mergers--Time Inc. with Warner Communications and Time Warner with Turner Broadcasting System. And no one knows the assets better.

“He knows everything about every business Time Warner is in,” said Robert Daly, former chief of Time Warner’s Warner Bros. unit. “He has a capacity for absorbing knowledge more than anyone I’ve ever dealt with.”

Media and entertainment executives were already speculating on how the management structure and relationships would evolve. Some said they see Case taking on a role similar to the one Ted Turner assumed when Time Warner bought his company in 1996: bearing a lot of clout because of his stock holdings, but mostly focusing on strategic issues related to the company he ran before. Like Turner, whose base remains in Atlanta and at his ranch in Montana, Case would stay at his original company’s headquarters, in Dulles, Va., rather than work at Time Warner’s New York headquarters.

“It depends on what Steve Case wants,” one insider said about the Internet executive’s role. “But he and Jerry seem well matched.”

People close to the two said they have hit it off well since Case called Levin to pitch the deal in October. With AOL given the code name “Alpha” and Time Warner given the code “Tango,” the two executives continued their discussions in various meetings, leading up to a critical dinner last Thursday at Case’s Northern Virginia home in which the two talked about their visions for a combined company.

That set into motion frenetic discussions over the weekend. With AOL executives housed at New York’s Four Seasons Hotel, the two sides took over the 30th-floor offices of law firm Simpson Thacher & Bartlett until a deal was reached after each respective board adjourned at 9 p.m. New York time.

As with most proposed mergers, the morning-after news conference was a love fest. Levin described it as a company of “hugs and high-fives.”

Indeed, the two sides seemed to be bending over backward to converge not only their cultures but their dress codes as well. Levin was dressed casually like an Internet executive at his cubicle, wearing a tweed coat and no tie. AOL executives wore the suits.

As Levin took the podium, he joked that “it gives me great pleasure to welcome the suits from Virginia here to New York.”

One common link that could make things smoother is AOL President and Chief Operating Officer Robert W. Pittman. He once ran Time Warner’s theme parks, and Hollywood executives were already betting that because of the common heritage, Pittman could eventually run the company when Levin retires.

Still, skeptics note that the two companies are vastly different in style, and that merging Time Warner’s more staid corporate culture with that of a fast-moving, entrepreneurial Internet operation could produce friction.

But Daly, now chairman of the Dodgers, said he actually sees fewer pressures.

“You get tensions when you’re both in the same businesses and don’t want to do it their way,” Daly said. “In this case, there are no overlaps.”

He said one reason there were so many tensions when Time merged with Warner Communications was that the structure of the deal called for Warner executives to get huge sums of cash for their holdings, while Time executives got stock that initially sank in value. In this case, all sides get stock.

Levin has defied skeptics before about his ability to mesh vastly different companies and cultures. After the death of former Time Warner chief Steve Ross, it was Levin who maneuvered through the corporate politics to grab the top spot amid doubts that he was the right choice to make sure Time and Warner blended in their first few years as a combined company.

During the mid-1990s, predictions of Levin’s demise were routine as Time Warner’s stock price lagged, executive infighting was rampant and skepticism was common that the two cultures would never mesh.

Instead, Levin’s place is secure as investors have embraced his strategy of buying and developing cable systems and transforming the company digitally.

“Jerry, for whatever his weaknesses--and there aren’t many--has proved to be a highly visionary CEO. He’s easy to underestimate,” said former Universal Studios Chief Executive Frank Biondi, who worked with Levin in the 1980s when he was an executive at Home Box Office.

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Voices

“We will remember this as the year that the Internet ceased to be a technology and became a medium. The nerds will go to work, but the media guys will be calling the shots.”

--Paul Saffo Director, Institute of the Future

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“It’s profound when you look at the combined assets of the two companies. The two companies as one will include two competing platforms that now have the opportunity to work together... . This is a very powerful deal for consumers.”--Jeffrey Berg

Chairman, International Creative Management Board member, Oracle Corp.

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“While this deal instantly creates a giant electronic distribution system for musical recordings, it also requires--for the first time--that an Internet company be concerned about protecting the value of the musical content it is distributing.”

--Hilary Rosen Recording Industry Assn. of America

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“Who would have thought that a company that didn’t exist 10 years ago would be picking off one of the biggest media companies? It’s shocking in its magnitude.”

--Chris McGurk (right) Vice chairman, MGM studios

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“This is a very powerful deal that reflects the importance of the Internet as it relates to all aspects of the media and entertainment industry.”

--Strauss Zelnick Chairman, Bertelsmann Music Group

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“I don’t think AOL is thinking of themselves purely as an Internet company. I think they are thinking of themselves as a bridge, a conduit between the home and the rest of the world. What would probably please them more than anything is to have a completely idiot-proof set-top box that delivers everything you want directly and on demand. The thing to do that may not involve the Internet; it may be a proprietary network.”

--James Korris Executive director, USC Entertainment Technology Center

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“It’s incredible. They’ve created a giant powerhouse here, a deal that enhances every opportunity you could imagine for the future of entertainment on the Internet.”

--Thomas D. Mottola (left) Chairman, Sony Music

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“AOL and Yahoo and Amazon will be our new kind of entertainment companies. They cease to be little ‘dot-coms’ seen as technology companies. They never were technology companies. They used technology. They invested very little in technology but put all their money into creating services and gaining customers.”

--Regis McKenna Regis McKenna Inc.