Internet pioneer Steve Case, architect of the deeply troubled merger that created AOL Time Warner Inc., said Sunday that he would step down as chairman because his leadership had become a "distraction" for the media giant.
The resignation, which becomes effective in May, means the two executives who devised the combination have now become casualties of the deal. Former AOL Time Warner Chief Executive Gerald M. Levin quit a year ago.
The company's top ranks also are swept clean of executives who came from America Online Inc. when it merged with Time Warner Inc. two years ago in a match that was supposed to reinvent the media world but quickly became a watchword for failed corporate ambitions.
Conceived at the peak of the dot-com boom, the $106.2-billion merger married an aggressive Internet service provider with one of the country's largest movie, television and magazine companies. The firms' conflicting corporate cultures never made a match, and America Online's position in the marriage slipped badly as Web advertising collapsed, taking the combined company's stock price with it.
"I'd rather be chairman," Case said in an interview Sunday night. "This may not be what's best for Steve Case. But it's best for AOL Time Warner."
Case's resignation leaves authority squarely in the hands of President and Chief Executive Richard Parsons, who took the reins when Levin resigned a year ago. AOL didn't immediately name a new chairman but is expected to do so before Case leaves the post.
Case finally succumbed to forces that had been building since he survived a widely reported attempt to oust him in September. No company director publicly called for his removal. But several -- including Hilton Hotels Corp. chief Stephen F. Bollenbach and former Major League Baseball Commissioner Francis T. "Fay" Vincent Jr. -- worked behind the scenes to end Case's leadership.
Media mogul Ted Turner, a major shareholder and board member, had previously played a role in Levin's exit and also indicated he would support Case's departure. But the issue wasn't formally raised at a September board meeting.
Turner and other shareholders have been bruised by a deep plunge in AOL Time Warner shares, which shaved well over $100 billion from their portfolios since the merger was consummated. The company's stock closed Friday at $14.88, up 55 cents in New York Stock Exchange trading after trading at about $55 in January 2001.
AOL Time Warner last year posted the biggest quarterly loss in history -- $54 billion -- and is expected to post another loss as high as $20 billion this month. Accounting practices at the Internet unit also are the subject of a federal probe.
Given the financial turmoil, some investors said they remain disappointed that Case will stay on AOL's board and will serve on its strategy committee.
Jeffrey Logsdon, managing director of investment bank Gerard Klauer Mattison, gave Case credit for recognizing that the investor sentiment was too much to overcome.
"That was probably an insurmountable mountain to climb," Logsdon said. "The difficulties AOL has experienced are bigger than Steve Case, but as chairman of the company you have to be in a position to affect strategy and accountability if you are to get to a better place. Wall Street kept waiting for him to emerge in that role, and it became very evident he wasn't going to."
Within the ranks of the New York-based conglomerate -- owner of such respected brands as the Warner Bros. studio and Time magazine -- some executives are now expected to renew a campaign to lop AOL off the company name. They say that both the AOL name and stock ticker symbol hang around the firm like an albatross.
Case, 44, said he made the decision to resign as chairman Friday. He called CEO Parsons the next morning and informed other board members Sunday.
A former Pizza Hut manager, Case became a billionaire by building America Online, with its "You've got mail" trademark, into the country's best-known gateway to the mushrooming Web. At the giddy peak of the Internet boom, Case and Levin plotted the deal at Case's Virginia home, lauding each other at a news conference days later, which Levin described as "hugs and high fives."
But competitors and new technologies are now threatening the service's customer base, even as Internet advertising revenue has imploded.
Despite the unsuccessful effort to nudge him out last September, Case insisted Sunday that he was under no immediate pressure from any board members to leave.
He said one director, whom he declined to identify, asked him to step down last fall, but there had been no subsequent conversations with directors about his departure.
Case said he feared that speculation about his future might pick up again before the May shareholders meeting and decided the company could not afford another public distraction.
"Why should I put the company through that?" Case said. "This opens another chapter, for AOL Time Warner and for me."
Parsons praised Case as an online pioneer who created the Internet's strongest brand, America Online.
"Both as chairman of AOL Time Warner and as the guiding genius behind America Online, Steve is the author of an historic chapter in global communications," Parsons said Sunday in a memo to employees. "This decision, reached entirely on his own, is consistent with Steve's unwavering commitment to what he judges are the best interests of our company."
Case was frequently criticized, both inside and outside the company, for being largely absent during 2001, when he remained behind the scenes and spent much of his time with his ailing brother, Dan Case, who died last year.
"After the merger, I thought the best thing I could do for the company was get out of the way," Case said Sunday. "But at the end of the day, as the architect of the merger, I can understand why critics would associate me personally with the disappointing financial results."
Employees at America Online's Dulles, Va., headquarters were saddened by Case's decision. During the campaign to oust Case last year, employees hung up signs in the hallways saying "We support you, Steve" and "We love you, Steve."
"Steve is golden guy," said Jonathan Miller, chief executive of America Online, in an interview last week. "He's an Internet guy. He has a feel for what people want and what they do online. And he cares and believes in the potential of AOL."
Miller, whose office is just 20 steps away from Case's, said he consults with Case on a weekly basis about strategy.
On the Time Warner side of the business, Case's decision came as no surprise.
"Steve was the flashpoint for the deal," said the president of one company unit. "This will enable the company to focus on substantive issues and not get hung up on personalities and history."
Case had little contact with the company's entertainment units. Still, the hostility toward him from within was strong as the merger foundered. The sagging stock price made employees' options worthless, and Time Warner managers complained about the perceived arrogance of Case's lieutenants in the early days of the deal.
One former senior AOL Time Warner executive, however, noted that the blame for the merger extends beyond Case, and that other members of the board who supported the deal should consider resigning.
"All of them voted for this transaction," the executive said. "It raised questions about whether they can carry out their duties to shareholders."
(BEGIN TEXT OF INFOBOX)
Chairman Steve Case is the latest AOL Time Warner executive to leave a key position in the last year. Since AOL Time Warner was formed two years ago, its stock has lost about 70% of its value.
Steve Case, chairman, agreed to resign January 2003
James de Castro, programming chief of AOL unit, November 2002
David Colburn, business affairs chief of AOL unit, August 2002
Robert W. Pittman, chief operating officer, July 2002
Barry Schuler, chief executive of AOL unit, April 2002
Gerald M. Levin, chief executive, January 2002
Source: Bloomberg News