New AOL-Time Warner chief has more than failed synergy to worry about

Tuesday, May 14th 2002, 12:00 am

By: News On 6

NEW YORK (AP) _ When Dick Parsons officially takes over at AOL Time Warner on Thursday, explaining why the hugely ambitious merger of America Online and Time Warner has not yet paid off will be the least of his worries.

Parsons, by his own admission, has a ``stark and clear'' challenge to deal with right now: a disastrous slump in the company's stock price.

The stock is down 75 percent since the merger was announced in early 2000, leading the company to take a $54 billion paper loss last month _ the biggest quarterly loss in U.S. corporate history. The drop-off has already hacked the value of the world's largest media company nearly in half since the beginning of the year.

But AOL Time Warner's problems go far deeper than that. Its main growth engine, the AOL online service, is sputtering; investors have grown weary after months of broken promises and bad surprises; a shake-up of top management only now seems to be settling down; and the entire media sector is mired in an advertising slump.

And now, in its moment of weakness, AOL Time Warner must grapple with several key challenges: laying out a clear growth plan for AOL's expansion into high-speed services, and striking deals with AT&T and the Newhouse family to clear up the structure of two messy cable partnerships, a legacy of Time Warner's deal frenzy in the 1990s.

``These are solvable problems,'' said Larry Haverty, an analyst for State Street Research. ``They're pushing the right levers, but it's horrendous trying to predict when an outcome dependent on negotiation will take place. On the other hand, the more the market mistreats them, the more likely it is they'll figure what they need to do.''

Parsons takes over as chief executive at AOL Time Warner's annual meeting on Thursday, replacing Jerry Levin, who is retiring at 63.

Rather than focus on the now-faded promise of ``synergy'' from combining various media holdings, Parsons instead is trying to emphasize the high quality of each of those holdings: HBO, Warner Bros., the Time Inc. magazines, and Warner music.

Parsons, in a presentation to analysts, listed his first goal as chief executive: ``Restore our credibility with investors.''

One of the greatest balms yet to investor worries has been the arrival last fall of a new chief financial officer, Wayne Pace, a loyalist of CNN founder Ted Turner, who is also vice chairman of AOL Time Warner. Pace replaced Michael Kelly, an AOL man whose promises of lofty growth targets turned out to be wrong.

That shift was part of a broader management shake-up. Last August Joe Collins stepped aside as the head of Time Warner Cable, the nation's No. 2 cable company; in December, Levin announced his retirement; and last month co-chief operating officer Bob Pittman was dispatched to solve the problems at AOL. All of the moves came with little or no warning.