Time Warner Inc. (NYSE:TWX) may be able to spin off AOL LLC, but it will never spin away the unit's role as a destroyer of executive careers and shareholder value.

Valued at $166 billion when the self-styled "deal of the century" between America Online Inc. and Time Warner was announced on Jan. 10, 2000, an AOL-containing Time Warner today commands a market capitalization of $28 billion. This 83% loss in market value is, sadly, what's easiest to grasp about the deal that should never have been.

Harder to grasp is the toll on the combined company's executive ranks. Jerry Levin, Bob Pittman, Ted Turner, even Steve Case -- all great leaders and all gone. And they're off the corporate stage not just prematurely but most likely permanently for having done little more than drink from the same vat of Kool-Aid that had so many of their peers, not to mention analysts, bankers, entrepreneurs and investors, spouting about a new economy.

The new economy was never realized, and neither was AOL's potential as the driver and distributor of Time Warner's unmatched inventory of content. Not that AOL Time Warner, which dropped the scarlet letters A-O-L from its corporate name in 2003, didn't keep trying. The efforts have already added two successive AOL heads -- Jon Miller and Randy Falco -- to the list of those the original deal beheaded.

It didn't help that, as an Internet service provider, AOL has never been more than dial-up. That meant the transaction in which it figured so prominently (its shareholders received 55% of the combined entity's equity) had built-in obsolescence. It also meant, arguably, that the promise misplaced in AOL kept its parent company from pursuing the potential of its much faster and technologically advanced cable-driven ISP, Time Warner Road Runner.

Sumner Redstone, while CEO of a presplit Viacom Inc. (NYSE:VIA.B), has on occasion talked about being approached by Case before the AOL chairman and CEO got in too deep into dealmaking discussions with Time Warner chairman and CEO Levin. "I didn't trust their currency," Redstone later crowed to the press. "I didn't see any advantage of marrying our great businesses and brands to any Internet company."

It's almost unthinkable that Redstone, who turned 86 on Wednesday, continues to serve not just Viacom but CBS Corp. (NYSE:CBS) as executive chairman, whereas the list of AOL victims merely continues to lengthen. One can't even be certain it will stop before current AOL chairman and CEO Tim Armstrong, the Google Inc. (NASDAQ:GOOG) recruit in whom Time Warner has as much faith today as it did with any of his predecessors. - Richard Morgan

April 28, 2000: Having revived the Las Vegas' Strip through Mirage Resorts Inc., gaming mogul Stephen Wynn bought the Strip's remaining eyesore, the Desert Inn, from Starwood Hotels & Resorts Worldwide Inc. for $270 million in cash -- which he was flush with thanks to his sale of Mirage to Kirk Kerkorian's MGM Grand Inc. for $6.4 billion only two months earlier.

Although the historic Desert Inn, which when opened in 1950 was one of the first Las Vegas resorts, had fallen on hard times, its owner had failed to keep pace with rivals even after a 1997 renovation. Despite the new buildings, the Palm and St. Andrews towers, and the only remaining golf course on the strip, the Desert Inn suffered $4 million in losses for Starwood's fiscal 1998, and Starwood didn't even include the Desert Inn on its fiscal 1999 financials because of expectations about selling it.

For Starwood, the sale marked an end to its gaming business, as it had already divested itself of Caesar's World gaming operations, selling it to Park Place Entertainment for $3 billion in 1999. However, for Wynn, it was a new beginning.

"All Wynn does is build and create 'Wow!' experiences for people," Joseph Coccigmiglio, an analyst with Prudential Securities Inc., told The Daily Deal at the time. "I would expect him to carry out some redevelopment and do whatever is positive for the market."

Talk about an understatement. Wynn didn't just carry out a redevelopment, he ultimately tore the whole complex down -- though he briefly maintained the 1997 additions for awhile before imploding them to make way for a second tower. In place of the original Desert Inn went up the $2.5 billion gleaming Wynn Las Vegas, which opened in 2005, and the more recent Encore, which opened in 2008. Wynn even hired Tom Fazio to remake the golf course, which now charges $500 a round. - Matthew Wurtzel

Pipeline subscribers see story from The Daily Deal archives

April 23, 2000: Much as the U.S. auto industry is now struggling amid the credit crisis, South Korean automakers struggled in the aftermath of the Asian Financial Crisis, when French carmaker Renault SA became the first foreign auto company to buy a South Korean peer, agreeing to take over troubled Samsung Motors Corp. from its parent Samsung Group in a $540 million deal.

In 1994, Samsung Motors was launched by Samsung Group's chairman Kun Hee Lee, who reportedly regarded the venture as a means to foster more cooperation between the conglomerate's disparate businesses. With the assistance of Nissan Motors, the venture began selling its first cars, which were mostly rebranded Nissans, in 1998, a year after the Asian Financial Crisis rocked South Korea. Ultimately, the crisis forced Samsung to cut short the venture, leading it to seek a buyer. A natural choice, of course, was Renault, which already owned a stake in Nissan.

Renault paid $100 million in cash and assumed Samsung Motors debt, according to a story in the archives of The Deal's Pipeline (subscribers, see the story). Meanwhile, Samsung retained a 19.9% stake in the company. Renault also secured a 10-year commitment to use the Samsung brand in South Korea, and last year Samsung extended that deal until 2020. Additionally, most Samsung Motors models remain based on Nissan designs.

The Franco-South Korean deal in turn set the stage for other major automakers to bid on bankrupt Daewoo Motors, the nation's second-largest automaker with plants around the globe. Daewoo, like Samsung Motors, fell victim to the Asian Financial Crisis. It had sought in 1996 to break ranks from its larger Western partner, General Motors Corp. (NYSE:GM) and begin designing more locally developed cars. However, the crisis cut this plan short.

Daewoo's sale, which came a year after Renault's purchase of Samsung Motors, mirrored its peer's sale. Although Daewoo, like Samsung Motors, was auctioned off in a heated bidding war between GM, Ford Motor Co. (NYSE:F) and other Western automakers, Daewoo also was ultimately sold to its venture partner, GM.

In some ways, today's financial crisis and the circumstances surrounding U.S. automakers GM and Chrysler LLC share some analogies with the South Korean circumstance. The South Korean automakers were heavily in debt much like today's U.S. automakers and ultimately struggled when demand fell. Additionally, the South Korean government had a hand in the sale of Daewoo Motors and Samsung Motors, and preferred foreign buyers to domestic buyer Hyundai.

Additionally, Treasury Secretary Tim Geithner and Obama adviser Larry Summers, who are part of the Automotive Task Force that the president established to help the U.S. automakers, are likely aware of what happened in South Korea, since the pair are credited with helping prevent the Asian crisis from becoming a global one when Summers was President Clinton's Treasury secretary. In all liklihood, they have told the task force to examine those circumstances. - Matthew Wurtzel

April 14, 2000: At the height of the dot-com boom, online grocers were a hot business model that was dominated by WebVan Group Inc., which had raised almost $1 billion in capital. Although the Silicon Valley-based chain was better known, it wasn't the first in the business. An earlier entrant, Peapod Inc., had been selling groceries online in the Chicago area since 1989. However, its efforts to expand during the dot-com boom, and keep pace with new (and in the case of WebVan better funded) rivals had proved expensive and nearly bankrupted the publicly traded company by 2000, leading it to seek help from its partners.

Unlike WebVan, which ran its own fulfillment centers, Peapod instead partnered with supermarket chains to provide fulfillment. Its leading partner was Dutch retail giant Royal Ahold NV, which operates the Stop & Shop and Giant chains. Rather than letting Peapod shrivel on the vine, Ahold agreed to pay $73 million to acquire 51% of the troubled Internet grocer. The Dutch giant also received warrants to acquire an additional 24% of outstanding shares, and it agreed to provide a $20 million revolving line of credit.

Supermarket analyst Andrew Wolf of Richmond, Va.-based Scott & Stringfellow told The Daily Deal at the time that the purchase price was not cheap, considering that Chicago-based Peapod is in difficult financial straits. Even so, Royal Ahold only paid two times 1999 sales for Peapod, Wolf said; rival WebVan at the time traded for nearly 9 times expected 2000 sales.

"This is a speculative issue that could be a home run or could be a strike out," Wolf said, noting that it remains unclear whether Peapod will become a dominant online grocer.

About a year later, WebVan went bankrupt as it buckled under the expense of owning and operating its own fulfillment centers. But Peapod continued to deliver groceries. Today, Peapod is a wholly owned unit of Royal Ahold and available in most areas where Stop & Shop and Giant stores operate. As for WebVan, it is now an Amazon.com Inc. Webstore that sells nonperishable groceries. - Matthew Wurtzel

See full story from The Daily Deal archives (subscription to Pipeline necessary)

Wenda Harris Millard is convergence incarnate. She's currently co-CEO and media president of Martha Stewart Living Omnimedia Inc. (NYSE:MSO), which she joined in 2007 after six years as chief sales officer at Yahoo! Inc. (NASDAQ:YHOO). But at 11 a.m. Monday, January 10, 2000, when Steve Case and Gerald Levin held a jubilant press conference to announce American Online Inc.'s $164 billion bid for Time Warner Inc. (NYSE:TWX), Millard was at DoubleClick Inc. (NASDAQ:GOOG). There, she was a founding executive of the pioneering provider of Internet ad services that was ultimately acquired by Google Inc. (NASDAQ:GOOG) for $3.1 billion last year.

In this episode of our Decade of The Deal video series, Millard recalls feeling "extremely skeptical" of the natural fit AOL and Time Warner purported to be.

March 17, 2000: Iridium LLC, the troubled international satellite phone service, announced plans to hang up, telling a New York bankruptcy court that it could not find a qualified buyer and would cease operations.

Hopes that Washington-based Iridium could be saved were dealt a blow two weeks earlier, when wireless entrepreneur Craig McCaw, now chairman of Clearwire Corp., withdrew from talks to salvage it. McCaw's Eagle River Investments LLC in February provided $5 million in financing, keeping Iridium in operation until March 6. Earlier, Eagle River had pledged to give the concern $74.6 million.

However, if you are wondering why an Iridium satellite recently collided with a Russian spy satellite, it's because the service did not permanently shut down as expected. Instead, it was restarted in 2001 after an investment group formed Iridium Satellite LLC to purchase the liquidating company's satellites at a bankruptcy auction for $25 million -- Iridium LLC reportedly had paid an estimated $6 billion to build and launch its network.

Recently, Iridium 33, one of Iridium Satellite's 66 operating satellites, unexpectedly collided with a Russian spy satellite, creating a great deal of media attention. - Matthew Wurtzel

Pipeline subscribers see Iridium Satellite LLC's profile page for the complete history
See related story about satellite ventures from Corporate Dealmaker

When the new millennium dawned, Europe's private equity dealmakers, like their counterparts in America, were overshadowed by a frenzy of corporate dealmaking. In February 2000, after a two-month struggle, Vodafone Airtouch plc wrestled German cell-phone operator Mannesmann AG to the mat, leading to a €181 billion (at the time $180 billion) takeover that is still tied with AOL's takeover of Time-Warner as the largest merger ever. As the decade began, Jean-Marie Messier was transforming Vivendi SA, a one-time water utility (with what turned out to be dubious accounting), into a media giant via a $34 billion merger with the Bronfmans' Seagram Co.

But as the consolidation wave in European telecoms and media companies slowed, buyout firms came to the fore. They soon found a role as scavengers, snapping up assets from overextended telecoms and extraneous parts of European conglomerates that suddenly found themselves under pressure to rationalize. Money came pouring into London-based buyout funds such as BC Partners and CVC Capital Partners, which each raised €3 billion-plus funds in 2000, as limited partners sensed the chance to earn outsized returns. In a telling sign of what the future would hold, Kohlberg Kravis Roberts & Co. raised a similar-sized fund that year to target Europe exclusively.

All that money was bound to breed deals, and breed deals it did.

It may not have been the largest deal we covered in 2000, but the $252 million signing of Alex Rodriguez by the Tom Hicks-owned Texas Rangers is still one of the most memorable from that year.

Seattle Mariners shortstop Alex Rodriguez was the most coveted free agent during the 2000 off-season, with every deep-pocketed major league baseball team in the hunt to sign him. The Dodgers, Rockies, Braves, Yankees and Mets were serious suitors, although the Queens-based franchise eventually dropped out of the bidding, claiming Rodriguez's contract demands made him more of a distraction than an asset.


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Few mergers have frothed up the waters like the America Online-Time Warner Inc. deal of 2000. Dealmakers and analysts fell over themselves praising or damning the deal, depending on their persuasion.

Never at a loss for words, Ted Turner succinctly summed up his feelings at the time by announcing the deal "was better than sex."

Turns out Turner was not as lustful about the hookup as previously thought. Appearing on the now-canceled "Conversations with Michael Eisner," Turner revealed he may have been kissing to be clever when he made those sexy remarks:

See America Online-Time Warner deal memo on The Deal Pipeline.

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