Before we get into the question of why Time Warner shareholders can’t seem to catch a good break and whether this deal can work, it’s disclosure time. AOL’s Time magazine is the primary competitor of my employer, NEWSWEEK. And I used to work for Money magazine, one of AOL’s properties.
Back to the main event. And to the question of whether this deal will work out for the old Time Warner shareholders. As you’ll see, it’s already worked out for America Online holders. This is the third time in a dozen years that the old Time Inc. has been involved with what biz types call a “transforming transaction.” And so far, by my count, Time shareholders are 0-for-2; the other holders are 2-for-2. In the late 1980s, Time paid so much for Warner Communications (whose chief executive, Steve Ross, took control of the combined company but unexpectedly got sick and died) that Time Warner stock was depressed for years. In the mid-’90s, with its stock cheap, Time Warner issued tons of new shares to buy Turner Broadcasting at a rich price. And now we’ve got the AOL deal, which looks a lot worse now than it did when it was first unveiled on Jan. 10, 2000.
The trick here is whether the AOL types, led by Bob Pittman, will actually play well with the Time Warner types, led by Gerald Levin. You can discuss this from now until forever, but the only way we’ll find out is to sit and wait. AOL is clearly more opportunistic than Time Warner. For example, Instant Messenger, AOL’s hot product, is something it bought rather than something it created. I can’t think of a similar triumph, however accidental, that Time Warner has had with an acquisition. As witness the problems at CNN, the old Turner Broadcasting’s crown jewel, which can be blamed on current Time Warner managers, who’ve run that show for years.
Two closing thoughts. First, no matter what anyone at the new company says, journalism–going out and looking for the truth, then presenting it to people–at AOL Time Warner will be less important than it was at Time Warner. Where, in turn, journalism was further down the food chain than it had been at the old Time Inc. Second, the heavy hitters at Time Warner–er, AOL Time Warner–are slated to move into a huge building currently under construction across the street from NEWSWEEK. In my experience–see Salomon Brothers and the late Drexel Burnham Lambert–a giant new headquarters tends to be a giant symbol of a market peak.
