TW Digital’s Pepe exits

AOL management likely to take over

The proposed merger between Time Warner and America Online is less than two months old, but a shake-up in management and company stock has already begun.

In a move that could signal the Internet strategy of a combined AOL Time Warner, Michael Pepe has stepped down as chief operating officer at Time Warner Digital Media.

Pepe may remain with the company, perhaps as head of Time Inc.’s international division, now that John Marcom has exited the post and joined Netcaster AtomFilms.

Pepe was named chief operating officer last June when Time Warner opted to redirect its own Internet efforts, shuttering and creating five hubs to focus on news, finance, sports, entertainment and lifestyle. The first to launch was

Time Warner declined to comment, but observers speculate that AOL’s management team will take over Time Warner’s Internet reins.

Pepe’s move follows the recent ankling of former CNN vice chairman and chief operating officer Steve Korn, as well as his replacement, Bill Burke. TW owns Turner Networks, including CNN, and Korn had been tapped to run Time Warner’s news hub.

Korn said in an internal memo that he plans to leave June 1 to spend the next several months with his family in Italy. Burke resigned from Turner in January “to decide what he wants to do with the rest of his life,” a spokeswoman said.

On the stock front, shares of AOL have slid nearly 30% since the marriage was proposed Jan. 10. AOL slipped $1.75 to close Friday at $51.25.

Time Warner fell $1.19 on Friday, closing at $76.19, having fallen 15% since the proposed merger was announced. Its stock traded at $65 before the merger announcement and surged to $92.25 on the day that the linkup with AOL was unveiled.

Based on their market capitalizations at the time of the announcement, a combined AOL Time Warner would have had a value of about $350 billion. On Friday, the combined company would have been worth closer to $220 billion.

The Federal Trade Commission will take three to four months to review the merger. Should the deal be called off, Time Warner and AOL face a breakup fee of 2.7%, as usually assigned in mergers, which would amount to $9.5 billion.

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