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Time Warner to Pay $2.4 Billion to Settle AOL-Related Suit

Is The Megamerger Misery Nearing a Close?


Time Warner CEO
Richard Parsons

Time Warner has settled a shareholder lawsuit related to overstatement of company revenues in the wake of its highly troubled merger with AOL. The settlement is in the amount of $2.4 billion and has affected the company’s quarterly profit picture, which showed a loss of $321 million versus profits of $777 million a year earlier.

The lawsuit accused the company of overstating revenue by a total of $1.7 billion in the period between January 1999 and August 2002. Time Warner's auditor, Ernst & Young, will chip in $100 million towards the settlement.

The merger between Time Warner and AOL was hailed at the time as a brilliant combination of traditional media and so-called New Economy media. It insulated AOL from the dramatic tanking of technology stocks in 2000 and 2001, but nevertheless has inflicted severe economic damage to Time Warner over the years.

A goodwill write-off in the $45 billion range a few years ago demonstrated that AOL may not have been all that it was touted to be. AOL is known to consumers for wallpapering the country with promotional CDs, but known to publishing industry insiders as a company that accounted for marketing expenses over highly unrealistic subscriber lifetimes. With news of the lawsuit and its subsequent large settlement, it appears as if AOL’s unorthodox accounting practices seeped into post-merger corporate practices.

AOL has always been scorned by the technical community as an underperforming service for novices. It has nevertheless acquired a base of millions of loyal members, 3 million of whom are often online at any particular time during the day. It continues to provide updates of the pioneering Netscape browser (albeit with technical problems in its most recent release.) But its performance has not stopped Time Warner as an overall corporation from activities such as the $17.6 billion acquisition of Adelphia to bolster its cable operations.

Mergermeisters Steve Case from AOL and Gerald Levin from Time Warner have long since left the building. AOL hubris is gone, as are its initials in the company name, as is its presence as the company stock ticker symbol.

Richard Parsons, who became Time Warner’s CEO in May 2002 and chairman in May 2003, was thought at the time of his appointment to be just the type of straightforward operations person who would put the company back on track, with no more nasty corporate delusions of Old/New Economy synergy. He seems to be delivering on this promise, but one imagines that he hopes the shareholder lawsuit resolution is the last bit of cleaning up he has to do with respect to AOL.

More Stories By Roger Strukhoff

Roger Strukhoff (@IoT2040) is Executive Director of the Tau Institute for Global ICT Research, with offices in Illinois and Manila. He is Conference Chair of @CloudExpo & @ThingsExpo, and Editor of SYS-CON Media's CloudComputing BigData & IoT Journals. He holds a BA from Knox College & conducted MBA studies at CSU-East Bay.

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WSJ News Desk 08/03/05 03:43:57 PM EDT

Well past the time when it's been determined that the AOL/Time Warner combination maybe wasn't such a good idea after all, Time Warner may be biting its final bullet in paying out $2.4 billion to settle litigation regarding overstatement of revenue in the wake of the merger.