If you were the CEO of one half of the most gargantuan technology mergers to date, which ultimately became one of the largest business disasters in recent memory, how would you reflect? Sarah Lacy, at tonight’s PandoMonthly in New York, asked AOL’s founder Steve Case to do just that. Her question: how did he think the $164 billion AOL-Time Warner merger, that ultimately gave 55 percent of the company to AOL and the CEO title to Time Warner’s Gerald Levin, went?
Case’s response: “I don’t regret doing the merger.”
Quite a statement. Especially when you remember that the general consensus for the last thirteen years has been that the merger was one of the worst business deals in history. In Case’s eyes, he sees the merger from two different perspectives: from the eyes of history and the eyes of AOL’s CEO. From the former, it was indeed a disaster. But from where he sat at the time — that is, founder and CEO of one of the first Internet businesses — it was a sound decision.
“If you view it as what’s happened to the stock since, or view it from what’s happened to the franchise since, it’s clearly a disappointment,” he conceded. But that wasn’t his view at the time. “My job was looking at what was best for the company,” he told Lacy point blank.
“It was better to own 55 percent of this larger company than 100 percent of our standalone company,” he rationalized. He even maintains that it was ultimately right for investors today. He pointed to Time Warner’s worth today as well as AOL’s — both having “significant value” (AOL’s market capitalization is $3.5 billion and Time Warner’s is $59 billion). Even though the deal turned sour, which was exacerbated by the bubble bursting shortly thereafter, the deal still makes sense, he says.
And yet it doesn’t. For more than a decade people have continued to write about what exactly went wrong. Case, it seems, pondered the same. To the audience he quoted an old Thomas Edison quote: “Vision without execution is hallucination.” In Case’s estimation, “that is the story of the AOL-Time Warner merger.”
So what did go wrong? On one side we had AOL, an early Internet startup booming and looking for a way to enter into broadband. On another we had one of the oldest legacy cable providers trying to stay relevant in the Internet age. On paper it was a match made in heaven. But the cultures inevitably clashed.
“Having the idea is one thing, executing against this idea is another,” said Case. “We didn’t execute well against it.”
Part of this was the confusion around which company was truly the ‘boss.’ Case was no longer the CEO, but his company held 55 percent of the power. “There were people on the Time Warner side that were resentful,” he said. “Similarly, there were people on the AOL side that had sharp elbows.” And all of this was exacerbated when the stock market imploded.
In short, the two companies were faced with a perfect storm of market and cultural differences, which ultimately led to the largest business disaster in recent memory.
And while Case maintains that the deal should have been made, he also doesn’t mince words when he talks of his discontent. “I’m disappointed, frustrated, and sometimes a little bit angry,” he told Lacy, “that what we spent so many years building has lost its way and lost some of its excitement.”
But that’s how business goes. As startups get bigger they have to learn how to deal with these resistances. So while Case doesn’t regret doing the merger, hidden in his words is the story of what gets lost when a business based in disruption reaches behemoth status. It’s hard to reconcile the two.
As Case put it, “people are prisoners of their own stories.”
[Photo by Kirill Ginko]