Some guys have all the luck, while others are able to see good timing

By DAVID MOON, Moon Capital Management
April 28, 2002

How many times must someone be lucky before you decide it is more than just luck? That they must have some special gift for timing? After all, much of life is just about good timing. Elvis had the good timing to permanently retire before becoming an overweight joke on late night television; think of the wealth accruing to Lisa Marie as a result. Great timing. Bill Gates happened to acquire the rights to MS-DOS just as the personal computer was about to take off. Excellent timing.

Add AOL Time Warner CEO, Stephen Case, to that list. Over and over again.

For several years before AOL was a blip on the computer screen, various companies were trying to connect computer users to one another. Case began bombarding our mail boxes with free AOL disks about the time PC users made the mass switch from DOS to Windows, the user interface that made connecting modems to PCs (relatively, compared to DOS) seamless. Great timing. Case gets rich.

In March 2000, the tech craze peaked and the stocks began a precipitous decline. No need to go over old history here; if you read the business page, you know all of this. But what you may have forgotten is that only months before, the once little Internet service provider, America Online, gobbled up one of America's crown media jewels, Time Warner, using its overvalued stock as currency.

Instead of paying cash for Time Warner, AOL used its stock. It didn't really have any cash. Besides, everyone wanted to be in the Internet business, so Time Warner (seemingly) gladly swapped its stodgy old stock for the new-fangled, high tech AOL shares. Little would the Time Warner executives know that only weeks later, the AOL stock would begin a decline toward worthlessness. There is no reason to think Case knew that either, but his timing was good enough to swap shares of AOL for a majority interest in the company that owns Time, Turner Broadcasting, CNN, Warner Brothers studio, Warner Music Group, Time Warner Cable and other valuable media properties. Had Case waited two years, his AOL shares would have been worth a fraction of their early 2000 price and the deal would have never occurred. As it is, Case managed to exchange his overpriced AOL shares for shares of a real business with a competitive edge in many of its operating subsidiaries. Good timing again, Steve.

By now, you might think Case is charmed. But wait. He gets better.

In the last several months, Case exercised more than $125 million worth of AOL Time Warner options, handsomely padding his pocket before a huge decline in AOL Time Warner's price. Case regularly sold company stock in the two years following the Time Warner acquisition. At the time of the acquisition, the shares traded at almost $90 per share. Today, the price is less than $20.

Former Time Warner CEO, Jerry Levin, could use some of the Case luck. Not only did Levin sell his company to a business within only weeks of the peak of the tech mania, he then gave up his job to the head of AOL. (Another win for Case.) Then, Levin had the poor timing to continue to hold his new AOL shares - rather than start selling them like Case. Last year, Levin's options were worth approximately $300 million. Today they are worthless. The value of Levin's 10 million actual shares has declined another $50 million.

Bad timing, Jerry. Perhaps you should rub Steve's head for a little luck.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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