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                                                                                BUSINESS, Page 38

COMPANIES

Coup at the Top


A sudden shake-up in Time Warner's executive suite breaks a
management stalemate and gives the company a new line of
succession

By GEORGE J. CHURCH -- Reported by Richard Behar and Thomas
McCarroll/New York


    The arrangement was supposed to be cut and dried, even
ironclad. Not only did it designate Nicholas J. Nicholas Jr. the
sole heir to Steve Ross as head of Time Warner Inc. The 1989
merger agreement that created the world's largest media company
also spelled out the date of his accession -- five years in
advance. As of 1994, Ross, while remaining chairman, would step
aside as co-chief executive officer, and president Nicholas
would become the sole CEO.

    Except that it didn't work out that way. Last week, with
two years to go before his accession, Nicholas, 52, found
himself outside the company, dropped abruptly. Into his shoes
stepped Gerald Levin (pronounced Le-vin, the second syllable
rhyming with win), 52, an old rival who was bounced as a Time
Inc. director in 1987 -- a move said to have been engineered by
Nicholas -- but recovered to become the Time side's chief idea
man and a main drafter of the merger plan.

    Officially, Nicholas resigned, citing unspecified
"differences" with management and the board of directors. In
fact, he was ousted in a coup conducted, he angrily told
friends, in banana-republic fashion. Exactly who played what
role in fomenting it was uncertain. But from Wall Street to
Hollywood to Tokyo, theories abounded.

    According to one line of speculation, the timing of the
Nicholas ouster was dictated by Ross's health; he has been
undergoing chemotherapy treatments for prostate cancer since
last autumn. Directors and company officers who opposed Nicholas
felt that they needed to ensure that if Ross died, Nicholas
would not succeed him. But a number of other insiders say the
move would have been made months earlier had it not been for
Ross's illness. One crystallizing factor, apparently, was the
death of Borg-Warner chairman James F. Bere, a longtime member
of the Time Inc. board who remained a director after the merger.
With the so-called Time faction reduced by one, this theory
goes, Ross and Levin knew that they could count on support from
a majority of the board.

    Some accounts named Levin as the chief organizer, working
with the support of J. Richard Munro, a former Time Inc. CEO
who retired in 1990, shortly after the merger with Warner
Communications. But it was clear that chairman Ross, 64, though
weakened by his cancer therapy, had nonetheless taken a major
hand.

    While the shift had been brewing for months, it was
consummated in just four days. On Sunday, Feb. 16, board members
got the first calls summoning them to a special meeting in New
York City. On Thursday, they voted 21 to 1 to bounce Nicholas,
who had pointedly declined to attend. Rejecting an offer of a
company plane that would pick him up in Vail, Colo., Nicholas
chose instead to continue a family skiing vacation and sent his
so-called resignation to New York.

    Predictably, there was some immediate speculation from
outsiders that the Nicholas ouster marked a final victory for
the supposedly freewheeling Hollywood Warner Communications
crowd over the reputedly more restrained, button-down old Time
Inc. clique. "You have this group of Warner rowdies storming the
gates of Rome," says a management consultant. "Just like the
Visigoths made quick work of the Romans, the Warner people are
quickly dispatching the remnants of the old Time."

    That view seems to be at best a crude oversimplification.
Although he was a top executive of Time Inc., Nicholas was
basically a financial analyst, a numbers man. Levin too came out
of Time Inc., though he rose through its newer cable-television
enterprise rather than the publishing operation that was the
core of the company for a half-century after its founding in
1923.

    It was Levin who in the early 1970s spawned the idea of
renting space on a satellite to relay TV signals. A Philadelphia
native who once planned to be a rabbi but switched from religion
to philosophy at Haverford College, he graduated from the
University of Pennsylvania Law School and practiced briefly
before joining Time Inc. in 1972. His notion of bouncing movies
off satellites and into living rooms from Boston to Berkeley
helped transform Home Box Office from a struggling service into
the biggest pay channel in the U.S.; combined with its sister
Cinemax service, it now has nearly 24 million subscribers.

    Levin rejoined the board in 1988 as Time Inc. vice
chairman and added the title of chief operating officer of Time
Warner last spring. He not only cultivated ties with Ross but
also made a point of learning all he could about Warner's movie
and other entertainment operations.

    A number of thoughtful observers, both inside and outside
the company, feel that Levin will be more able to bridge the
two cultures than the reserved Nicholas was. But they doubt
that Levin will help Ross complete any takeover. "Levin is not
in the Ross faction," says Andrew Heiskell, a former chairman
of Time Inc. "He's in the Levin faction." One Time Warner
director predicts that under Levin "there's going to be a real
effort to have the Time Incers feel they're more important and
that they are players."

    Though some analysts speculated that the shake-up might
ease the way for a sell-off of Time Warner's magazine
subsidiary, Levin -- like Nicholas -- adamantly opposes any such
move. According to To the End of Time, a sharply critical book
by Richard Clurman, a former TIME chief of correspondents, it
was Levin who remarked at the time of the merger that "the core
[of the new company] is not Bugs Bunny, it's TIME magazine."
Levin is said by some to believe that sizable layoffs at the
magazines last year helped demoralize their staffs
unnecessarily. He is also said to feel that an emphasis on
creativity is preferable to cost cutting as a focus of
management.

    Beyond this effort to shore up the publishing side,
insiders expect Levin to make few sharp changes in Time Warner's
direction -- at least not quickly. "He'll discuss, he'll
debate," says Michael Fuchs, chairman and CEO of Home Box
Office, Levin's corporate alma mater. "Jerry's style is not to
make dramatic moves. He's a plodder with a lot of patience. He
has the most long-term view in the company."

    Wall Street's immediate reaction -- a jump of nearly $2 a
share in the company's stock Friday -- suggested a widespread
belief that Time Warner had broken a damaging stalemate. The
company has made considerable financial progress lately. It has
reduced its burdensome debt from $11.2 billion to $8.7 billion,
and in the final quarter of 1991 reported its first profit, of
$45 million, since the merger. Nonetheless, many financial
sources say it has been moving much more slowly than it should
have been because of near paralytic tension at the top --
tension between Ross and Nicholas.

    In the aftermath of his overthrow, Nicholas told friends
that Ross didn't like his independence of mind. Others say the
troubles stemmed largely from personality clashes between the
ostensibly equal chieftains. "There are not two people more
mismatched," says a top executive. In Ross, he maintains, "you
have a dreamer and a visionary, a plunger and schemer"; in
Nicholas ``a guy who's small and risk averse. You could hardly
get a yes out of him. He loved the status quo." While Ross is
generally described as a charmer, Nicholas "is not a likable
guy," says a director. Some executives and directors had the
impression Nicholas was in over his head, knew it and had grown
afraid of his job.

    Specific disagreements finally brought matters to a head.
Nicholas last year opposed the rights offering that raised $2.6
billion for Time Warner from stockholders who subscribed to buy
additional shares; he had been shaken by the bad publicity that
greeted an earlier version of the plan. Some sources say that
at one point he proposed selling Time Warner's highly profitable
music division to raise cash, an idea that horrified (and no
doubt further alienated) Warner executives.

    Henry Luce III, son of Time co-founder Henry R. Luce and
a Time Warner director, corroborates a widespread report that
the "one solid issue" triggering Nicholas' downfall was his
attempt to block one of Ross's major deals: Time Warner's sale
of a 12 1/2% share in its movie, cable-TV and Home Box Office
operations to two Japanese companies, electronics maker Toshiba
and C. Itoh, a trading company, for $1 billion. Luce says that
while Ross wanted to bring foreign investors into operations
that Time Warner would continue to control, Nicholas favored
selling off assets outright.

    Benjamin Holloway, an outside director of Time Warner,
gives a different reason: Nicholas, he says, "was concerned
about the Japanese influence in America's communications
industry. He thought that we were opening the door to something
that might not be too good." By some accounts, Nicholas'
opposition not only delayed the deal but forced it to be
renegotiated -- on terms less favorable to Time Warner than
those originally planned; an executive says the company might
have got an extra $100 million to $200 million out of the
Japanese if the deal had closed quickly. Ross, says a company
adviser, was so angry that for months he and Nicholas have not
even been speaking to each other; Levin, arriving at work before
the other two and leaving after them, carried messages between
their offices on the 29th floor of the Warner building in
midtown Manhattan.

    Finally, says the adviser, Levin called on Munro last
Sunday, at the retired chairman's home in New Canaan, Conn., and
then on other directors, to argue that Nicholas had to go.
Levin, says this source, contended that "irrevocable damage had
been done in the Toshiba deal, that the estrangement was
incurable and that the impasse between Steve and Nick had to be
broken if the company was to move forward." Several company
sources, including directors, say Levin was acting on behalf of
Ross, who also took a personal hand. One director says he was
called first on Sunday by Arthur Liman, a prominent lawyer who
is a close friend and associate of Ross's, and then on Monday
by Ross himself. Liman, he says, told him "that certain
directors [already] had been spoken to and were in line. It
showed a background of careful preparation; it seemed that it
had been going on for at least a week."

    Last Wednesday, Munro reportedly called Nicholas in Vail
to break the news. Nicholas, friends say, had no idea what was
coming and was bruised and very angry. He made a few calls to
directors to try to round up support but found he had almost
none. When the board met Thursday (Ross participated by speaker
phone from his New York apartment), some members thought the
action was precipitate. But only Luce spoke out openly in
opposition, and he got no backers; his was the only vote
against. Nicholas will be paid an estimated $15 million to
fulfill the seven remaining years on his 10-year contract.

    So now it is Levin who will take sole charge of the
company in 1994 -- or is it? "Levin is the right man for the
right time," says David Liebowitz, who watches media companies
for the firm American Securities. "He's aggressive and expansion
minded, so he can keep an eye on costs and take a long-term view
of the company's future." HBO's Fuchs calls his predecessor
"the inheritor of the Time tradition; he has the old feeling
that we are more than just a business."

    Ross so far has received the first three of six
chemotherapy treatments; though they have weakened him, they are
also said to be bringing some progress. The chairman has told
some associates he expects to be back in his office by late
spring. If he recovers fully, some doubt that he will give up
the chief executive's post in 1994 in anything but name, and
perhaps not even in that.

    The verdict on how well Time Warner will succeed as a
merged company has yet to be rendered, but a stalemate at the
top certainly reduced its chances. Breaking that logjam and
having in place two co-CEOs who seem capable of communicating
comfortably with each other could go a long way toward improving
the odds.