AOL Board May Not Have Votes for Ouster

Company directors unhappy with AOL Time Warner Inc. Chairman Stephen M. Case appear to lack the support needed to oust him at Thursday’s regularly scheduled board meeting, people close to several directors said Tuesday.

Vice Chairman Ted Turner, the largest individual shareholder and thus the biggest loser in AOL Time Warner’s ongoing stock slide, has indicated he would support removing Case but does not plan to spearhead such an effort, one source close to him said. Last year, Turner played an instrumental role in the campaign to push out AOL Time Warner Chief Executive Gerald M. Levin, sources said. Levin, along with Case, orchestrated the January 2001 merger that created the world’s biggest media company.

“There is no substance to it,” AOL Time Warner spokesman Ed Adler said about reports that Case is on his way out.

However, some board members have been lobbying hard behind the scenes to force out Case, and could even push for a vote on his status at the board meeting to embarrass Case and pressure him to resign, said sources close to some AOL Time Warner directors. Among the directors said to be leading the anti-Case campaign are Stephen F. Bollenbach, chief executive of Hilton Hotels Corp., and Francis T. “Fay” Vincent Jr., a former major league baseball commissioner.

Vincent declined to comment, saying it was inappropriate for directors to discuss company business before a board meeting, and Bollenbach did not return a telephone call seeking comment.

Bollenbach and Vincent have the backing of some of AOL Time Warner’s largest institutional shareholders, sources said, including Capital Research Group, which was the biggest AOL Time Warner investor on record as of June. Sources said that Capital’s Los Angeles-based media money manager, Gordon Crawford, more than doubled his stake in AOL Time Warner this spring and summer, and that he is working to unseat Case.

Crawford was one of the biggest boosters of the America Online and Time Warner marriage when it was announced. Crawford’s firm now holds an 8% stake. By comparison, Turner owns about 3% of AOL Time Warner shares while Case holds less than 1%.

Wall Street analysts acknowledge that another management shakeup at AOL Time Warner would be jarring.

Of the three executives most closely identified with the merger, only Case remains. Levin, former chairman of Time Warner and chief executive of the combined company, resigned under pressure last spring. Robert W. Pittman, former chief executive of America Online and co-chief operating officer after the merger, resigned in July.

Chief Executive Richard D. Parsons, who took over from Levin in May, repeatedly has voiced his support for Case, saying he remains a valued advisor on company strategy.

If Case departed, analysts said, Parsons could assume the additional role of chairman, although some investors favor a current board member assuming that post. Turner would be an obvious candidate, although he is considered by some board members to be too volatile.

But the sentiment toward Case on Wall Street is by no means unanimous.

“If they’re going to get that much brainpower in one room on Thursday, I’d like to see them do something that contributes to earnings,” said Henry Asher, president of Northstar Group, a Manhattan investment firm that owns AOL Time Warner shares.

Many disgruntled shareholders of the former Time Warner Inc. blame Case for hyping the benefits of the January 2001 merger when he was chairman of America Online.

The popular Internet service was supposed to fuel tremendous profit growth by giving Time Warner’s established but staid brands--including Warner Bros. Studios, Warner Music, Turner Broadcasting and the Time Inc. magazines--exciting new exposure in the online world.

Instead, the merger has been a fizzle for stockholders. AOL Time Warner’s shares have plunged more than 70% since the merger, as Internet advertising has all but evaporated and the growth of subscriptions to the online community has slowed sharply. AOL Time Warner’s shares closed Tuesday at $12.58, down 9 cents, on the New York Stock Exchange.

Worse, the company is the target of a federal criminal investigation and a barrage of shareholder lawsuits. The Justice Department and the Securities and Exchange Commission are investigating allegations that America Online used questionable advertising transactions to falsely boost its sales and profit.

While denying wrongdoing, AOL Time Warner last month announced that it had identified three transactions in which the Internet unit had “inappropriately” booked ad revenue totaling $49 million.

Under the AOL Time Warner bylaws, replacing a chairman requires a three-fourths vote of the board, or at least 11 of the 14 members. The anti-Case forces do not appear to have enough votes to dismiss him, say people familiar with the board’s thinking.

The board is evenly divided between former Time Warner and AOL directors. Parsons, Turner, Bollenbach and Vincent come from the Time Warner side of the merger. Other directors sharing that pedigree are Carla Anderson Hills, former U.S. trade representative; Reuben Mark, chairman and chief executive of Colgate-Palmolive Co.; and Michael A. Miles, former chairman of Philip Morris Cos.

The directors with America Online roots, besides Case, are Daniel F. Akerson, chairman of XO Communications Inc.; James L. Barksdale, former chairman of Netscape Communications Co., now owned by AOL Time Warner; Frank J. Caulfield, a general partner in venture capital firm Kleiner Perkins Caufield & Byers; Miles R. Gilburne, a principal of ZG Ventures, also a venture capital firm; Kenneth J. Novack, vice chairman of AOL Time Warner; and Franklin D. Raines, chairman of Fannie Mae.

Sources say several of the AOL directors are waffling in their support of Case, including Barksdale.

Company directors did not return calls for comment Tuesday.

Joseph E. Stocke, managing director of Stoneridge Investment Partners, a Malvern, Pa., firm holding about 1 million AOL Time Warner shares, said that while ousting Case might remove “some of the taint” from the company, Case’s expertise in building America Online could still be of value to the company.

Mulligan reported from New York and Hofmeister from Los Angeles. Times staff writer Edmund Sanders contributed to this report.