The megamerger that created

AOL Time Warner


took place in January 2001, of course. But perhaps business historians will date the launch of the company from today.

Not to dismiss the suffering of AOL Time Warner's employees, laid-off employees and shareholders over the past year and a half, but management and the company's stock start from a clean slate this week.

In the market's vulnerable state, it's an open question whether a fresh start is enough to make people take a fresh look at the stock. After all, just a year ago AOL Time Warner carried a much richer valuation, but that was before people stopped fully believing in synergies and convergence. It was also before a series of debt-driven balance sheet implosions and faith-destroying accounting scandals reminded investors that stocks could go down and stay there.

That said, even at this late date AOL strikes many observers as an intriguing collection of valuable assets whose value could easily exceed the company's low-tide valuation. "The thing is cheap," says John Tinker of Blaylock & Partners, who upgraded AOL Time Warner from hold to buy Friday morning with a price target of $21.


Let's start with the stock, which had slid $1.28 Friday afternoon to $11.17, down more than 10% for the day after drilling a new 52-week low of $10.82 in the morning. Commentators started saying this year when AOL Time Warner had dropped into the $20s, at that price you're buying Time Warner and

getting the online service AOL for free.

But, heck, at these prices, you're getting much of Time Warner for free, too. Consider that when AOL merged with Time Warner in 2001, Time Warner shareholders received a share and a half of the new company for each of their old shares. So that means an old Time Warner share is now worth about $17. Given that Time Warner was trading at roughly $50 a share back in late 1998, and at nearly $65 just before the deal with AOL was announced in January 2000, one can't help thinking that AOL Time Warner's stock has minimal downside and plenty of room to grow going forward.

In the other element of this new beginning, the executive power at AOL Time Warner is out of the hands of the technological optimists and in those of a more realistic crew. Gone is Bob Pittman, who despite being a Time Warner veteran was clearly identified with the now-discarded vision of the unstoppably ascendent Internet economy upending all known medial business models. Gone, too, is Time Warner visionary Jerry Levin, the man who told the world two and a half years ago, "The market capitalizations in the Internet space I accept. ... And while most people may have some difficulty with those valuations, in fact, to me, it's really quite simple, because it's a belief that the present value of future cash flow is so significant that that's how you justify it."

Logan's Heroes

In their place is a management team headed by CEO Dick Parsons, a man who five months ago referred to himself as the ice relative to Pittman's fire. And, as others have pointed out, Parsons' lieutenant overseeing America Online will now be Don Logan, a man who famously -- and not quite supportively -- once referred to Time Warner's pre-AOL Internet operations as a "black hole." Clearly, this is a team that feels no pressure, as might have the last administration, to overpromise what the online economy might deliver.

The wild card, of course, is AOL Time Warner Chairman Steve Case, the personification of AOL and the last remaining AOL executive with his self-image tied up in AOL's success. For various reasons, Case has lingered deep in the background of the company's operations over the past few months.

In a note Friday morning, Merrill Lynch analyst Jessica Reif Cohen said she wouldn't be surprised if additional management departures were forthcoming; whether Case will lead a revival of AOL or choose a less stressful existence for himself is a riddle for which outsiders will certainly await an answer.