(2 of 6)
When Time Inc. announced its betrothal to Warner Communications in 1989, the men in the front of the room were an odd match of Hollywood glitz and suburban Connecticut golf club. In 1995, when Levin and Turner proclaimed their deal, it was Earth meets Mars. But last week the two dealmakers actually seemed to speak the same language and perceive the same future.
Both Case and Levin were faced with what corporate strategists call a "make or buy" dilemma. Case must have contemplated that at some point Wall Street would come to its senses and that AOL's helium-supported Internet valuation would be punctured and deflate. Better spend those Net-flated dollars now--buy. Levin, with his stock price sputtering, didn't have the currency to pay the price of admission on the Internet. The company, in fact, could neither "make" nor "buy," which left it with but one option--sell.
Case and Levin began their mating dance at a meeting of the Global Business Dialogue in Paris last September. Two weeks later they continued their global flirtation at a lavish FORTUNE magazine event (FORTUNE is also owned by Time Warner) in Shanghai--one of those blurred events, part journalism, part meet-greet-and-deal, that make press critics howl. But the active courtship didn't begin until early October, when Case called Levin, proposed merger outright and--significantly--said he wanted Levin to be CEO of the combined company.
The gritty details of negotiating corporate marriage, in particular who gets the top jobs, began in mid-November, when AOL vice chairman Ken Novack, a Boston lawyer who is Case's closest professional confidant, traveled to New York City with senior vice president Miles Gilburne to meet with Richard Bressler, the former Time Warner CFO who had recently been placed in charge of the corporation's digital efforts. How do you puzzle out a high-tech-meets-media merger? On large sheets of paper. The three men scrawled out a crude vision of a combined company and posted the pages all over the muted gray walls of Bressler's imposing Rockefeller Center office. Gilburne took the rolled-up sheets back to AOL's Dulles, Va., headquarters, where senior executives examined them the way archaeologists examine the runic traces of an early civilization.
That it somehow remained secret was remarkable. The only clue was so outrageously bold that it went unnoticed. When AOL board member Thomas Middelhoff, CEO of the Bertelsmann publishing empire, visited with Time Inc. editors in early December, he was asked if he thought AOL should buy Disney. "No," Middelhoff replied with the sort of smile that announces a joke is coming, "I think [AOL] should buy Time Warner."
Levin had also come to that conclusion. He then had to come up with a price. Ten years ago, when Time Inc. "acquired" Warner Communications, he was harshly criticized for agreeing to a share-exchange ratio that allowed Warner's stockholders to become majority owners. Over the millennial weekend--"watching 100 hours of CNN," he says--Levin mulled the numbers. Conventional valuation methods, which look at a stock's price history as well as its potential, wouldn't work. In December 1998, for instance, Time Warner was worth more than AOL. By December 1999, AOL was worth 2.5 times more than Time Warner.