I’ve been in three marriages that didn’t work and in each case what begins to happen is you come to the point when you realize something’s wrong. You’re not at a point where you can say, “I’m going to leave,” but it’s like you’re playing on different teams. About eight and a half or nine years into my marriage with Ted I was starting to play on a different team, and my team was looking out for myself. He was willing to try to work on things and we went to see the counselor. But when we were both talking about the relationship I soon realized I had my own issues to work on. So I started working on me, but he didn’t work on him, and that’s why I decided to move along.
Ted and I went to the therapist for months but he couldn’t let anything in, he couldn’t let my words in, in trying to explain what it was that I was looking for. All he knew was that I had changed and I had thrown all these changes at him and he couldn’t take it and that’s when he started looking for somebody else because he thought “this isn’t going to last.”
Jane and I were together for ten great years. We both worked on the relationship, but the marriage had run its course, so we decided to finalize our split on January 3, 2000.
We had built the house together at the Flying D Ranch. Jane decorated the place beautifully, and we had a lot of fun out there. There’s a big stone fireplace in the living room, and she laid out every single rock on the floor and told the builders how she wanted them arranged. When I first went back there without her after the divorce, Jane had taken all her things. Our closets faced each other’s, and when I saw her empty space I sat down on the floor between them and cried. I loved Jane very much and still love her to this day. The house at the Flying D continues to bring back memories. Jane had planted an apple tree near the front door, and a few years ago, the first time it produced apples, I put a few in my briefcase and delivered them to her at her home in Atlanta.
As with other setbacks in my life, I knew I needed to keep moving. I reconnected with an old friend named Frederique D’Arragon, whom I’d met many years before during my sailing career, and she and I began dating. (We stayed together for three years and remain good friends today.)
January 3, 2000, was a Monday. The world was discovering that Y2K had come and gone without a major disaster, and I was in Big Sur, California, trying to relax. Unbeknownst to me, back in New York and Virginia, conversations had resumed between Jerry Levin and Steve Case. Apparently, over the holidays, Jerry had decided that this was the deal he wanted to do. They agreed to terms on Thursday night over dinner at Case’s house and on Friday, January 7, Jerry called to tell me that we had a deal. We were merging with AOL.
AOL: Phased Out and Fenced In
T
ime Warner was not good at keeping a lid on confidential news, and when Jerry Levin and Steve Case agreed to terms on the AOL merger, they wanted to make the announcement quickly. This would be a $160
billion
transaction—the biggest corporate merger ever—and after shaking hands on the deal late on a Thursday night, Jerry and Steve agreed that all the legal and due diligence work had to be completed over the weekend so that the announcement could be made the following Monday morning.
I was used to moving quickly, but that first full week of the year 2000 was a whirlwind. On Monday, January 3, my marriage to Jane came to an end. That Friday, Jerry called to tell me the AOL deal was on. I flew to New York for a Sunday board meeting and the announcement would be made the next day. This was a lot to absorb, and it didn’t help that I had come down with the flu over the holidays.
I was feeling awful and even though I had my doubts about the merger, I reluctantly supported it. The Internet continued to be the rage and while I wasn’t swept up in it myself, Jerry was a smart guy and was convinced that this deal would not only validate Time Warner’s value, it would also transform the company. I was concerned about AOL using their inflated stock to make the purchase, but the premium they were paying for Time Warner—roughly 60 percent—was very high.
All this sounded good, but before committing to vote my shares I felt obligated to get some outside advice before Sunday’s board meeting, and for this I turned to the four smartest men I knew, whom I had worked with in the past, and who understood the situation. These were Mike Milken, John Malone, Gordy Crawford, and Taylor Glover. In each case, when I discussed the deal with them individually, they recommended that I should vote for it.
A TED STORY
“It Was All Thrown Together So Quickly”
—Taylor Glover
I was away in England and I got a call from Rich Bressler, who told me they wanted Ted to sign a document voting his shares in favor of the deal. They put enormous pressure on getting this thing signed immediately and when I spoke to Ted, he’d say things like, “Well, eleven of the other twelve directors can’t be wrong.” He’d pose questions to me in a rhetorical way and when I’d say, “Yes,” in response, that was affirmation for him. But I was on vacation in Europe having trouble keeping a phone connection, not sitting with Ted face-to-face. I don’t think I ever saw a document relating to the terms of the deal and I’m not even sure I saw the one he signed voting his shares over. It was all thrown together so quickly it was incredible.
A TED STORY
“A Completely Different Account”
—Gordy Crawford
I can tell you exactly when I heard about the Time Warner– AOL merger. My company was having a three-day retreat right here in Los Angeles, at Shutters Hotel. I was on a break Sunday night when I got a call from my son, who works at Warner Brothers. He said the word running all through the Warner grapevine was that Time Warner was merging with AOL. I said, “Well, I haven’t heard anything and I think that’s something that the Time Warner guys would mention to me.”
It turned out that Jerry Levin had called me at home, leaving a message on my voice mail that he had an important thing he wanted to talk to me about but he didn’t know where I was. So I heard the rumor of it from my son on Sunday night before it was announced on Monday morning, but Ted had to commit before the public announcement of the transaction. I don’t know why Ted thinks we had that discussion but we couldn’t have because I didn’t know anything about the deal.
In fact, I was involved in putting Jerry Levin together with Jerry Yang in a potential transaction with Yahoo. Those discussions had been going on since the prior summer and they went right down to the wire. It turned out Jerry Levin was doing parallel negotiations with Jerry and Yahoo, unbeknownst to Steve Case at AOL. The negotiations with Yahoo broke down in late December when, basically, Jerry Yang decided he didn’t want to do anything. Anyhow, Ted had to commit long before he and I ever talked. I don’t know if he talked to Milken and Malone and he probably did talk to Taylor about it, but I never got involved in it until it was an announced merger and Ted had long ago signed his shares.
In fairness to Ted, in the subsequent weeks after the deal, he and I spoke about it and I was fairly supportive. Basically I was just wrong. I didn’t know all the shenanigans going on within the company and because I was an old media guy, I missed the whole fundamental vulnerability of the dial-up model. So certainly after the deal was announced and done, Ted would be accurate saying that I talked positively about it.
A TED STORY
“This Gave You a Chance”
—Michael Milken
We obviously talked about it, but I would say it maybe a little differently. There was a whole series of conversations but I do think the issue that was a little different here was that the opportunity to get value was substantially better by taking that deal. The decision about whether to hold or not
after
the deal was a different story. Every single media company today sells below what it sold back then, not just Time Warner; but this gave you a chance. The AOL–Time Warner deal was creating a value substantially more than Time Warner was worth. The question was obviously if you didn’t sell, what was going to happen. That’s a whole different story.
A TED STORY
“What Are You Calling Me For?”
—John Malone
Ted’s memory is different than mine. My memory is by the time he got to me I asked, “Have you agreed to support it?” and he said, “Yes.”
So I laughed and said, “What are you calling me for?”
And he said, “No, in all seriousness, what do you think of the deal?”
I told him that on paper I thought it looked like a pretty good deal. The government had made me give my Time Warner votes up and so even if I didn’t like it there was nothing I could do about it. But at that point, I did believe that financially the deal would work.
The Time Warner board meeting was held at 2:00 on Sunday afternoon. When I arrived, a ten-page document was handed to me that committed me to vote for the deal, and to pledge that I would not reverse that decision during the time it took to close, which was expected to be as long as twelve months. There wasn’t time to even read the document and I didn’t have an attorney with me, but I assured Jerry and the board that if the board voted in favor of the deal, I’d sign the agreement.
The board session lasted almost seven hours. With big deals like this one, it’s customary for the board to listen to lengthy presentations and hear recommendations from investment bankers, and in this case, the people from Morgan Stanley made a forceful case for why this was a great deal for Time Warner shareholders. According to the transaction’s supporters, this would be the ultimate combination. They said that Time Warner, with all its valuable “old media” assets, would be “turbo-charged” by this merger with AOL, one of the fastest growing and most well-respected “new media” companies.
Everyone agreed that this would put AOL Time Warner out in front of our competitors. We’d be the biggest, most diversified, and most formidable company in the media industry. So when we voted, we were unanimous and I signed the document voting my shares irrevocably. AOL’s board approved the deal that same day. All that was left was the announcement and I went back to my hotel to rest.
News of the deal began to trickle out Sunday night, and by the time we gathered for the press conference—in the auditorium of the Equitable Center—the crowd was tremendous. Years earlier, when I held another New York press conference to announce my bid for CBS, that seemed like a really big deal. We also got a lot of notice in 1995, when Jerry and I announced the merger of Turner and Time Warner. But January 10, 2000, was on a different level altogether. The world was hyped up over the Internet and here was a deal that seemed to validate all that hysteria. It was the biggest transaction in corporate history and the media crush was unprecedented.
For me, the announcement was unique for different reasons. In every deal I’d done in the past I was a principal, but in this case I wasn’t involved in the final negotiations and only found out three days earlier that a deal had even been struck. Instead of being the only person or one of two making the announcement, on this day I shared the stage with five other men. The lead players were Jerry Levin and Steve Case and they spoke first while I sat in a chair alongside Dick Parsons, AOL’s Bob Pittman, and their CFO, Mike Kelly. I didn’t know Case and Pittman very well and had just met Kelly that morning. For the first time, the deal I was helping to announce truly wasn’t my deal. But I had agreed to support it and my responsibility was to be an upbeat cheerleader for the new company.
After Steve and Jerry made their comments, it was my turn to take the podium, and I didn’t hold back. “Shortly before 9:00
P.M.
last night,” I said, “I had the honor and privilege of signing these papers that irrevocably cast a vote—the first vote taken—a vote for my 100 million shares, more or less, for this merger. I did it with as much or more excitement and enthusiasm as I did when I first made love some forty-two years ago!” I got a laugh but I also made the point that I was excited about the deal and would support it to the best of my ability. (Days later, during a Turner Broadcasting executive committee meeting in Atlanta, one of our executives said that they all did the math and were surprised that I was nineteen years old when the earlier event in question occurred. “It’s true,” I confessed. “It took me nineteen years before my first time, but it was just a few minutes before my second—I was a fast learner!”)
It was an exciting moment. The press coverage was extensive and largely favorable. The merger was hailed as “a deal for the new millennium,” and Time Warner’s stock rose about 40 percent that day. The shares I owned personally were now worth about $10 billion.
Little did I know that it would all be downhill from here.
Shortly after the announcement, it became clear that many within Time Warner did not share Jerry’s enthusiasm for the deal. On that Friday after Jerry and Steve shook hands, lawyers for Time Warner sequestered members of top management and briefed them on the merger. Not only were they shocked, many were frustrated and insulted to find that the deal was fully negotiated and this was the first they’d heard of it. Jerry had worked so quickly and secretly that even Time Warner’s own CFO had been kept in the dark. Like me, when they first heard the terms they had trouble accepting the idea that AOL was acquiring Time Warner and it was hard to think that we would be called AOL Time Warner, not Time Warner AOL. Many at Time Warner who had business dealings with AOL viewed their people as arrogant, brash, and generally hard to work with. That the merger would drive Time Warner’s stock to new highs was not enough to gain their enthusiasm. Merging companies is challenging in the best of circumstances, and with so many Time Warner people questioning the deal the task here would be particularly difficult.
Just a few months later, Internet stocks started to plummet. During a three-week period starting in late March the Nasdaq index lost almost one third of its value. AOL’s stock fell, too, and since this was the currency they were using to buy our company, the deal looked worse by the day. Several factors contributed to the technology stock sell-off, but a big reason for the downturn was a realization that many of these companies simply were not good businesses.