By DAVID MOON, Moon Capital Management
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
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
In March 2000, the tech craze peaked and the dot.com 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
By now, you might think Case is charmed. But wait. He gets
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 dot.com 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
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).