HOLLYWOOD — Richard Parsons has his work cut out for him.
The AOL Time Warner CEO has vowed to reduce debt and sell off non-core assets, like publishing, sports and cable systems, at a time when buyers are more standoffish than ever and the economy shows few signs of a sustained upturn.
He has also promised to fix the problems at little-loved and much-muddled America Online, whose ad revs have plummeted, subs languished and accounting practices come under SEC scrutiny.
To make matters worse, the conglom’s top dog has just been named in a lawsuit, brought by the U. of California and Amalgamated Bank, for insider trading.
This suit, filed in California state court by the law firm of Milberg Weiss, tops a pile of some 30-odd shareholder complaints against the conglom. It alleges that company chieftains used “tricks, contrivances and bogus transactions” to profit post-merger from cashing in stock even as company finances faltered.
In addition, the suit contends that AOL knowingly overstated its online ad revs by $1 billion and that execs sought to disguise the deterioration of the online biz and to mislead shareholders about the overall company’s prospects.
Most of the other folks named in the suit — Steve Case, Robert Pittman, Ted Turner and Gerald Levin among them — have left the company or no longer have operational control, so Parsons and vice chairman Kenneth Novack are in the unenviable position of being in the spotlight at just the wrong moment.
Parsons, 54, has only been in the CEO post since last May, and was less involved in the merger machinations than, say, Case or Pittman, as he was then a content guy on the Time Warner side of the biz.
Perhaps he should emphasize that message as he is named chairman at the company’s annual shareholders meeting May 16. That move runs counter to the latest corporate governance thinking, which argues that the two roles should be kept separate.
It will be interesting to see if normally passive but now increasingly irate shareholders, who have seen their stock tumble 70% in three years while a clutch of top execs exited with huge payoffs, will make a stink over this additional title for Parsons or indeed over any other governance issue.
Meanwhile, sell-offs of assets could be tricky.
For one thing, there are a lot of such media assets out there. Well-heeled buyers are currently pouring over Vivendi U’s parts, with Apple and Microsoft sniffing around the music unit, and Viacom, Liberty Media and others eyeing the cable TV assets.
Bookseller WH Smith said recently it wasn’t interested in acquiring Warner’s publishing biz, while it’s unclear who might fork out for the conglom’s trio of sports teams, the Atlanta Braves, Hawks and Thrashers.
As for an IPO of Warner Cable in the next few months, some analysts suggest the company could raise as much as $2.5 billion from a float, but others are less optimistic.
The conglom’s debt load is approaching $30 billion, and Parsons has publicly committed to paring it back to $20 billion by the end of 2004. Even if he succeeds with these disposals, they’re unlikely to amount to more than $5 billion.
A lot will thus be riding on a continuation of healthy revs from juggernauts like “Harry Potter,” “Lord of the Rings” and “The Matrix” — and from continued successes at HBO, the WB and Warner-produced shows like “Everwood” and “Smallville.”
And there sure better not be a spillover of AOL’s problems to other areas of the conglom, or Parsons, as avuncular and statesman-like as he appears, may be toast.