Gerald M. “Jerry” Levin wasn’t just a self-styled intellectual, well-liked by colleagues as he quoted Camus around the Time Warner offices in Manhattan. He was also the “resident genius” who transformed the fusty media company into a broadcasting pioneer.
When Levin died on March 13, though, obituaries primarily remembered him for his central role in the “worst merger in corporate history”: The $350 billion AOL-Time Warner deal, which served as a poster child for the excesses of the dotcom bubble. The Financial Times cast Levin as the “architect of [a] disastrous dotcom-era media merger.” The Times of London went further, calling Levin a “corporate titan nicknamed Caligula” whose reputation was “permanently discredited by the failed merger.”
There’s a lot more to Levin’s story—down to the fact that he, years later, took responsibility for leading the company into a deal that it never fully recovered from. Levin also held onto all of his AOL Time Warner stock, never cashing out a single share even until the day he died, according to data compiled by analytics provider the Washington Service.
The 2000 merger between internet provider AOL and entertainment giant Time Warner was catastrophic for all concerned. Initially heralded as a visionary deal, the $350 billion merger—which remains the largest in American corporate history—quickly devolved, costing investors billions and many employees their retirement savings. Levin never held another top job again.
Ridiculed by the media and resented by many of his colleagues, Levin was unceremoniously ushered out as CEO of AOL Time Warner just two years after the merger. From that point until his death last week, Levin has often been portrayed as shortsighted, selfish, gullible, or all of the above—a leader who refused to listen to the better advice of his colleagues and should be held singularly responsible for the damage the merger caused.
Decades later, Levin did something unexpected: He owned his mistake. In 2010, in an appearance on CNBC, Levin made a public apology for the deal. “I’m really very sorry about the pain and suffering and loss that was caused. I take responsibility,” Levin said. “It wasn’t the board. It wasn’t my colleagues at Time Warner. It wasn’t the bankers and lawyers.”
Levin’s slice of humble pie wasn’t the worst of what he dealt with; he suffered an unimaginable tragedy earlier in his career.
Levin’s son Jonathan, a public school teacher in the Bronx, was brutally murdered in his apartment by one of his former students in 1997. Levin didn’t often speak about his son’s death, but later said that it had a profound impact on his worldview. In her book on the merger, Fools Rush In, former Fortune reporter Nina Munk suggested that Levin’s loss made him “almost untouchable” and gave colleagues caution about criticizing his decisions too heavily.
“He was never quite the same, understandably, after this horrendous killing,” Alec Klein, a Washington Post reporter who covered AOL Time Warner in the early 2000s and wrote a book on the merger, told Fortune.
“The digital DNA”
When Levin—who earned his reputation at Time Warner as the brains behind its HBO division—took over as CEO of the company in 1992, the business world was on the precipice of the dotcom boom. By the late 1990s, Time Warner’s legacy cable and entertainment assets were stale; everyone was talking about the potential of the internet. AOL, at the time the largest internet provider in the country, was the dotcom era’s undisputed juggernaut. Led by young CEO Steve Case, it effectively had the booming internet market cornered. Wall Street couldn’t get enough: AOL’s stock increased over 717% from its 1992 IPO to its peak in 1997. Levin saw an opportunity.
He became convinced that Time Warner needed to make a splashy move to get into the booming internet sector. AOL, the face of the new internet and the hottest company on Wall Street, seemed like the perfect candidate.
“[Jerry] felt like he had the right notion that Time Warner wasn’t moving fast enough into the digital age,” Ed Adler, former head of communications for Time Warner, told Fortune. “He always said he wanted to inject the digital DNA of AOL into Time Warner by doing this. Of course, it didn’t work.”
The architect
Levin and AOL CEO Case agreed to the merger in secret, over dinner and a bottle of red wine in a Manhattan hotel room in November 1999. The fact that Levin kept his closest advisors in the dark has followed him ever since.
“The corporate executives—of which I was one—and the people who were closest with Jerry didn’t have any idea [about the deal],” said Adler, currently a partner at global strategic communications firm FGS Global. “Few people at Time Warner were excited about the merger.”
Plenty of ink has been spilled over Levin’s motivations for the deal. Maybe he was being selfish. He was 61 at the time, approaching the end of his career, and perhaps he envisioned pulling off the biggest merger in American history more as a personal career milestone than a rational business decision. Maybe he was just plain foolish: It’s clear looking back that in 2000, at the peak of the dotcom bubble, AOL’s stock was hugely overvalued, and Levin was likely giving a lot more than he was getting. Maybe he genuinely thought he was doing the right thing.
Whatever his intent, when Levin announced the deal to his Time Warner staff, the internal response was negative. Employees worried about integrating AOL’s high-flying, techie culture with Time Warner’s more old-guard business practices, and didn’t see the sense in making such a big deal given that Time Warner was already laden with debt.
“I think everyone involved in the deal certainly had some doubts, but given that we went forward with the deal, we thought the positives outweighed the negatives,” Bob Pittman, AOL’s former COO, who became the COO of the company post-merger, wrote in an email to Fortune. “It was certainly a clash of cultures, as well as the combination of companies with much different growth prospects and profiles.”
In large part, Levin’s refusal to heed the warnings of the people around him is what’s earned him the dishonor of being dubbed the “architect” of the merger.
“I remember a lot of people wanted [Jerry] to back out of it, and he wouldn’t. He was a hardheaded guy. He wanted to stick with his view that this would transform Time Warner,” Adler said.
Things started going downhill almost as soon as the ink dried. AOL and Time Warner executives clashed. Reports emerged that AOL had been relying on fishy accounting practices to keep its revenue numbers up, roiling the company with lawsuits. And the dotcom bubble popped in March 2000, mere weeks after the deal was announced publicly, sending AOL Time Warner’s stock plummeting.
In 2002, AOL Time Warner reported nearly $100 billion in losses, at the time the largest annual loss in history, according to the 2003 Fortune 500 list. The company never fully recovered after the merger.
“[Looking back,] this was done at the absolute wrong moment,” Adler said.
The bigger picture
The company spiraled throughout 2002 and 2003, and employees’ retirement savings—which were largely held in the form of company stock—tanked. Levin retired, divorced his wife of 32 years, and moved to Los Angeles, collecting a $1-million-a-year salary as a “consultant” to the company and largely leaving public life.
But although some Time Warner executives voiced concerns about the deal, the public response after it was announced was primarily positive, and supportive of Levin’s bold move.
“It was hailed as this life-changing event—everyone was crazy about it,” Klein said. “There hasn’t been another merger since that’s captured the imagination the same way AOL-Time Warner did.”
A Fortune poll of Fortune 500 CEOs published in the Feb. 7, 2000, issue of the magazine, just weeks after the merger was announced, reported that 71% of CEOs thought the merger was a good deal for Time Warner.
In the same issue, Fortune cited Morgan Stanley banker Jeff Sine as saying he was “absolutely convinced that new businesses get ‘unlocked’ when you merge companies and get people to think creatively and cooperatively about what can be done…Sine thinks that the hookup of Time Warner and AOL has endless possibilities for creative thinking and that Jerry Levin, in particular, has the kind of intellect to be fascinated by the possibilities.”
One of the most ardent skeptics at the time of the merger was Fortune editor Carol Loomis, who published multiple articles questioning AOL’s stock valuation and the logic behind the deal. But even Loomis didn’t come down squarely on the side of calling the deal a mistake.
In a story published Feb. 7, 2000, Loomis and associate Christine Chen wrote: “Even at internet speed, it will take some time for the world to judge whether AOL overpaid in offering 1.5 shares of its stock for each Time Warner share, or whether Time Warner sold its impressive assets too cheaply, or whether this is truly a marriage made in heaven.”
Levin made a terrible business decision. But although he might have been swimming against the tide within his own C-suite, his thinking was in line with the markets’ prevailing beliefs. He was latching on to what was, at the time, the conventional wisdom: The internet was the Next Big Thing, and legacy media companies like Time Warner couldn’t afford to miss out.
“He doesn’t deserve the blame—and [I’m] not even sure it should be blame,” Pittman wrote. “Everyone, including both boards of directors and all the advisors, and indeed the chorus of positive press at the time, shares that responsibility.”
Leaving business behind
The merger is now widely recognized as the worst such deal in American corporate history. Time Warner spun off AOL in 2009 and was acquired by AT&T in 2018.
Levin stayed out of the public eye after retiring from AOL Time Warner in 2002. He started a relationship with former Hollywood producer and psychologist Laurie Perlman. The two of them opened a wellness center, which a 2004 Fortune story by Barney Gimbel described as “a sanctuary of calm and order in a world of chaos, pressure, and fear…the 15-day intensive program includes everything from traditional psychoanalysis to acupuncture, neurofeedback, and even sex therapy. It’s designed for movie stars and executives like Levin.”
For his part, Pittman disagrees with the characterization of the merger as the worst in history.
“‘The worst merger in corporate history’ is…more than a little bit overdramatic. It may be a good clickbait headline, but it doesn’t match the facts of a company that on an operating business actually took out record amounts of costs, created significant new revenue, and had better financial performance than its peers during the ad downturn at the beginning of the aughts. Bad press, huge political infighting, and strong emotions, yes. Worst merger, no,” Pittman wrote.
Despite recognizing the deal as a mistake, Levin never sold any of his AOL Time Warner stock. For better or for worse, he stuck to his guns until the end.
Editor’s note: Many of the details in this article were sourced from Nina Munk’s Fools Rush In: Steve Case, Jerry Levin, and unmaking of AOL Time Warner. Munk’s account is an excellent resource for readers interested in learning more about Levin and the AOL-Time Warner deal.
This story was originally featured on Fortune.com
Source: finance.yahoo.com