WEEKEND INVESTOR: Reality begins to bite OVERVIEW ELLEN KELLEHER:
Financial Times; Feb 3, 2001
By ELLEN KELLEHER
Since regulators formally blessed the marriage earlier last month, AOL Time Warner, the world's largest media and internet company, has never really enjoyed a honeymoon.
Faced with a slowing US economy that has also made life difficult for rival media companies, AOL Time Warner will have to struggle to meet the impressive growth targets that Gerald Levin, chief executive, has set.
On Wednesday, the same day the company reported lower-than-expected earnings, Levin calmly attempted to persuade investors that next year AOL Time Warner's revenue would increase 11 per cent to Dollars 40bn and the company's earnings would jump 30 per cent.
Last quarter, AOL Time Warner lost Dollars 1.09bn after special charges, while core earnings rose a modest 14 per cent to Dollars 2.4bn, due primarily to a less-than-stellar performance at Time Warner, the old media partner in the new media marriage.
Earnings aside, morale at some subsidiaries of the old Time Warner is a serious problem. Cuts at CNN, including redundancies for a few famous faces, have left the cable channel's employees in doubt about the future. Even the names are changing; CNNfn, the financial news network, is to become CNN Money, but whether the channel will live up to its new moniker remains to be seen.
Stop.com
Throughout his 15 years at the helm of Walt Disney, 57-year-old Michael Eisner has stayed faithful to the Disney dream; he sees the company's forte as being that of a storyteller, and so he has been naturally reluctant to embrace the idea of interactivity.
So, given the poor climate for internet ventures, it was not too surprising when Disney officials first hinted to the Financial Times and then confirmed that the company would pull the plug on Go.com, Walt Disney's lossmaking internet portal, and cut 400 jobs.
In another sign that he was keen to concentrate on the core business, Eisner compared himself with Odysseus, the mythical Greek hero who lashed himself to the mast to avoid the temptation of the alluring sirens. In this case, the siren call is coming from those who suggest Disney should get into the acquisition game.
Eisner's decision to trim his internet sails follows a similar course set by The New York Times, Rupert Murdoch's News Corporation and Time Warner. "Advertising companies have abandoned the internet," said Eisner. And, although he is still pumping money into other Disney-branded sites, he has given up on the idea of an all-singing, all-dancing portal.
Love triangle
When Lloyds TSB knocks on the door of Abbey National, the smaller bank refuses to invite it in. The failed courtship between Lloyds and Abbey is turning into a British soap opera. How much longer will Abbey be able to resist its aggressive suitor?
This week, as British bank stocks fell and investors and analysts moaned, Lloyds filed a Dollars 28bn bid, conditional on clearance from competition regulators and agreement from Abbey's board.
Abbey has already rejected the bid, but eager to share costs and solidify its business to prepare for possible international expansion, Lloyds is being particularly persistent.
The UK's third-largest bank has pursued Abbey aggressively since November 1999 when Abbey began talking to Bank of Scotland about a potential merger. Like any suitor, Lloyds got jealous. "We want it to be us, not someone else," said Peter Ellwood, the bank's chief executive officer.
Abbey still favours a marriage with Bank of Scotland, but the outcome will also depend on John Vickers, the new director-general of the Office of Fair Trading. He must decide by February 23 whether Lloyds can proceed. However, Abbey hopes he will refer the case to the Competition Commission, which could delay the acquisition for four to six months, and cool the passion of Lloyds for its desired partner.
Slick operator
Senior executives at Bertelsmann appear fairly worried about the regulatory obstacles that the German company may face if it decides to expand its business internationally. They are so worried it seems that they are turning to a US expert for guidance.
This week, Thomas Middelhoff, Bertelsmann CEO, asked Joel Klein, the US prosecutor who led the charge against Microsoft's alleged monopoly, to become one of his advisers and the head of US strategy at the German company.
The skilled antitrust buster may be Middelhoff's secret weapon when the time comes to convince international regulators to approve Bertelsmann's future mergers.
Well-connected in Washington, Klein has established ties with the ranking wheelers and dealers at the Federal Trade Commission. A veteran of former US president Bill Clinton's White House, he is also close to Mario Monti, the head of the European competition directorate.
Bertelsmann's big concern is to win approval for plans to merge with EMI to form the world's largest record company. The proposed merger has yet to be formally announced, as the two sides are still working out details, but Klein's expertise will no doubt be handy when it comes to convincing regulators that this music company is no monopoly.
Personal ties
Li Ka-shing is a seasoned investor who knows a good business deal when he sees one, but, like many hardened tycoons, he does not appear to believe in corporate charity.
As the head of Hutchison Whampoa, the successful Hong Kong-based telecommunications company, Li has invested a great deal of money in smaller telecom providers, but this week he had the opportunity to mix business with family. Part of a stake in his son Richard's company, Pacific Century CyberWorks, is up for sale, but refusing to bow to emotion, Li chose not to buy.
His son's company has been performing poorly despite having a strong presence in the Hong Kong mobile market, but the father said there was a more basic reason for the rejection. "Hutchison will not consider it because there is a conflict of interest," Li said. (The father and son's companies are the two largest mobile telephone operators in Hong Kong.)
Rumours are doing the rounds in Hong Kong that an influential company from China may decide to invest in Pacific Century CyberWorks, which could leave Li with even more competition from a more powerful source than that mounted by his son. Last week's Overview incorrectly described Sara Lee as a subsidiary of Unilever.
Copyright: The Financial Times Limited
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