CFO Takes a Fall at AOL Time Warner

Time Warner man Levin is reasserting himself over his AOL rivals, an investor says.
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AOL Time Warner

(AOL)

replaced Chief Financial Officer Mike Kelly, fueling chatter about intramural conflicts among executives at the 10-month-old company.

In a move easy to interpret as a demotion, Kelly went Thursday from being chief money man at the media and entertainment colossus to chief operating officer of America Online, reporting to his old AOL colleague Barry Schuler, now America Online's chairman and CEO. As part of Kelly's new duties, AOL Time Warner says he will work with other divisions of the company so they will take full advantage of the online service's resources.

Replacing Kelly will be Wayne Pace, a veteran of Turner Broadcasting Systems, the television operation acquired by Time Warner years before its January merger with AOL.

The news, which AOL Time Warner released a half hour before the market's close Thursday, gave AOL Time Warner's stock a $1 pop. Shares closed at $32.64, up $1.54. Rumors of Kelly's departure began circulating around the market in the latter part of the afternoon.

Clock of the Heart

Fleck T.I.M.E. Fund chief investment officer Uri Landesman, a longtime AOL investor who has no current holdings in the stock, says he sees the move as part of a wider conflict between executives at the former America Online on one side and the former Time Warner on the other.

Thursday's announcement, says Landesman, should be viewed in light of the news in August that longtime Time Warner Cable executive Joe Collins was moving to an interactive video division. At the time, speculation was that the move arose out of conflicts between Collins and onetime AOL executive Bob Pittman, now co-COO of AOL Time Warner.

Given Pittman and Kelly's relationship prior to the merger, moving Kelly is akin to a football team's owner asserting his authority over a coach by firing the offensive coordinator, says Landesman.

"We think this is a great step for Mike," counters AOL Time Warner spokeswoman Tricia Primrose, adding that Kelly was "uniquely positioned" to be leading AOL's cross-divisional efforts. "He brings not only an in-depth background from AOL," says Primrose, "but also all the experience he's gained here as the CFO of AOL Time Warner."

Pitfalls

Though being CFO is a demanding job at any company, Kelly has faced more than the usual challenges at AOL Time Warner, which has seen its stock fall from a high of $58.51 over the past year.

Since the AOL Time Warner merger was announced in January 2000, for example, executives have been insisting that the company would meet the ambitious financial goal of $11 billion in earnings before interest, taxes, depreciation and amortization -- a common media industry yardstick -- in 2001.

Amid Wall Street's increasing skepticism, the company finally announced in September that it wouldn't meet that target, though Kelly had started hedging on the company's goals as early as July.

The Wall Street Journal

reported Thursday morning that Kelly and AOL Time Warner's investor relations department had begun to shun Merrill Lynch analysts covering the company, following Merrill's recent downgrade of AOL Time Warner's stock from buy to neutral.

Landesman predicts Pace's appointment will warm up the relationship between AOL Time Warner and Wall Street. "Wayne's a good guy," says Landesman, who recalls that TBS, while Pace was CEO, had good relationships with analysts. "Wayne's much more Street-friendly than Mike is."