NEW YORK - AOL Time Warner Inc. shareholders gather Friday at a time investor discontent with the media giant's foibles could turn the meeting into a dramatic spectacle akin to some of the juicier fare on the company's cable programs.
With AOL Time Warner's stock down more than 70 percent since the company's formative merger in 2001, investors are likely to vent their frustrations. The big ones have criticized AOL Time Warner board members, and an influential advisory firm is questioning a stock-option proposal.
"The AOL Time Warner price debacle is of such historic proportions that it would be surprising if investors failed to take action to voice their discontent," said analyst Phil Leigh of Raymond James & Associates.
When AOL Time Warner shareholders last met, at Harlem's Apollo Theater a year ago, executives acknowledged investors' disappointment and pledged to get the company back on track.
Since then, shares have fallen 30 percent, intensifying the pressure on CEO Richard Parsons, who becomes chairman after Friday's meeting at a resort in northern Virginia.
A record $99 billion loss in 2002, largely from writeoffs that reflected the company's shrinking value, didn't help perceptions. AOL Time Warner also has yet to resolve federal investigations into its accounting.
The company showed a $396 million profit in its most recent quarter, and even the much-maligned America Online Internet division saw an 11 percent increase in operating income. But online revenue and subscribers continued to drop. Most of AOL's 26 million U.S. customers use slow dial-up modems, and the company is struggling to keep subscribers who upgrade to high-speed connections.
The company's star is the Time Warner side, especially the cable, TV networks, publishing and film divisions, which own such blockbuster franchises as "Harry Potter," "Lord of the Rings," and "The Matrix."
The past year has seen the resignation of America Online founder Steve Case as chairman and cable mogul Ted Turner as vice chairman. Although Turner will remain on the board, he has unloaded most of his stock, cutting his stake in the company from 3 percent to 1 percent.
Case also plans to stay on the board, but The Wall Street Journal reported last week that the company's biggest shareholder, Capital Research & Management, will withhold support for his re-election. The Journal said Capital also won't approve two Case allies, former AOL executive Miles Gilburne and vice chairman Ken Novack. A Capital Research & Management spokeswoman declined to comment.
Opposition to AOL Time Warner's board choices will not change anything for now, because the 13 directors are running unopposed. But the complaints could lead to changes in who is nominated for re-election next year.
Institutional Shareholder Services, an influential proxy advisory firm, suggests stockholders withhold support for Gilburne and Netscape Communications co-founder James Barksdale for being too closely tied to the company. AOL bought Netscape in 1999.
ISS also suggests investors reject an employee stock-option plan because it would be too expensive.
The California Public Employees Retirement System, the nation's largest pension fund, wants Gilburne and Barksdale ousted from the board, too - along with Hilton Hotels Corp. chief Stephen Bollenbach, Fannie Mae chairman Franklin Raines and former baseball commissioner Fay Vincent.
The California fund, which owns 20 million AOL shares, opposes Bollenbach, Raines and Vincent because they authorized auditor Ernst & Young to perform consulting services for the company, a potential conflict of interest. For the same reason, CALPERS is opposing the rehiring of Ernst & Young as auditor.
Denise Garcia, principal media and advertising analyst for Gartner G2, believes investor anger is dangerous for AOL Time Warner because it might force the company to abandon long-term plans for the Internet division in favor of short-term fixes.
Although AOL Time Warner has yet to figure out how to profitably take advantage of AOL as a distribution mechanism for Time Warner's content, Garcia believes that might stem mostly from difficulties in carrying out such a big merger rather than a lack of promise for the Internet unit.
"Investors don't want Steve Case there. I think they would prefer to sell off the online division," Garcia said. "But I think they'll find themselves without a long-term plan. Five years down the road, they might be kicking themselves."