Steve Case immerses himself in life after AOL

The merger left him disappointed, but eager to move on

Steve Case, who stepped down as chairman of AOL Time Warner Inc. in 2003, still draws a crowd. It's April, and he's describing the benefits of yoga and organic food to about 600 people at the 10th annual Lifestyles of Health and Sustainability conference at the Fairmont Hotel in Santa Monica, Calif.

Booths featuring Mum's Original hemp and flax supplements, Numi organic tea and shirts made from bamboo and soy fibers line the walls. Case, who last year started a company focusing on health care and luxury resorts, tells his audience that the United States is ripe for a transformation.

"The objective of this movement must be to make healthier, more-sustainable lifestyles available to every American," says Case, 48, who's wearing an open-collar shirt and khakis. "If we achieve that, we will effectuate nothing short of a revolution in this country."

The founder of Revolution LLC is making big promises. He's done it before. In 2000, as chief executive officer of America Online Inc., Case pitched the acquisition of Time Warner Inc. to his shareholders, saying it would create new ways for people to shop and communicate.

Case was wrong. The biggest acquisition in history cost investors more than $100 billion from its 2001 close through July 28, according to data compiled by Bloomberg. That staggering loss hasn't weakened Case's stand that the deal was the right thing to do.

"The merger was a good idea that was not well executed," Case says at Revolution's offices in Washington. "I was as disappointed as anybody by the outcome. But now it's time for me to move on."

Hawaii acquisition

As Case builds his next venture, he's battling two lawsuits filed in 2005 that accuse him of fraud and insider trading. The complaints stem from another acquisition he made in 2000 as the AOL-Time Warner merger was about to close.

Case reached into his own pocket to purchase Grove Farm Co., the storied sugar plantation-turned-development company that is one of Kauai's largest landowners. The Grove Farm suits allege Case cheated shareholders -- most of them descendents of Grove Farm founder G.N. Wilcox -- out of $750 million. A trial involving one of the suits is scheduled for October.

Steve Case says he did nothing wrong.

"I don't think from what I've read that the claims have any merit," he says.

Paul Alston, a Honolulu lawyer who represents Case, calls the suits "nonsense."

Grove Farm and its former directors have denied the accusations in court papers. Their lawyer didn't return a call seeking comment.

In any event, the Grove Farm deal, and a stake Case earlier took in Maui Land & Pineapple Co., have helped make Case the second-biggest private landowner on Kauai and Maui. His Hawaii holdings are worth at least $150 million, based on the sale price of Grove Farm and the market capitalization of Maui Land & Pineapple on July 10.

Case says his latest venture is about more than just making money. He says he plans to spend approximately $500 million on Revolution, and with that venture and Grove Farm he can do well by doing good.

"People are looking to achieve a sense of balance, to embrace our responsibility to our environment, to each other and to themselves," he says. "We want to be a leader in offering products, services and ideas that allow everyone to act on this growing understanding."

So far, he's bought 11 companies, some aimed at the rich and others targeting a broader market of consumers interested in health and the environment. Case has divided Revolution into three units.

Revolution Resorts runs a luxury vacation club and southern Arizona's Miraval spa. For about $500 a night, Miraval guests can achieve self-awareness and balance in their lives, the company says on its Web site.

Hybrid cars

Revolution Living operates Lime, a cable channel with programming on yoga and natural beauty aids, and Flexcar, a car rental company. Hybrid gas-electric vehicles make up 40 percent of its fleet.

Revolution Health, Case says, will improve health care by making it more responsive to the needs of patients. The unit operates clinics in retail stores, sells health insurance plans and expects to start a Web site later this year that provides news and treatment information.

Case's health-care businesses aren't exactly revolutionary, says Matthew Holt, a San Francisco-based independent health-care consultant. He says Case is piggybacking on established trends rather than bringing new ideas to the industry. Case's online portal, for instance, will compete with WebMD Health Corp., the descendant of WebMD Inc., which was founded in 1998.

"Case announced that health needed the great and the good of the Internet world to save it," Holt says. "It tends to be that the closer you get to trying to build a health-care business, the further away you get from your vision of changing how the health-care system works."

Underdog mentality

Case regularly logs 16-hour workdays in his new life, as he did at AOL, and he's just as single-minded about his pursuits, colleagues say. "Steve almost never does anything on the spur of the moment," says Miles Gilburne, a former AOL executive who's on Revolution's board. "He's very methodical."

Case says he's now recapturing some of the excitement he felt at AOL. He preferred the early days at the online service company in the 1980s when it was a struggling startup to the later period marked by the Time Warner acquisition.

"Steve had very much of an underdog mentality and was at his best in that role," says Kathryn Bushkin, executive vice president of the United Nations Foundation in Washington and a former AOL senior vice president. "He was less comfortable as the leader of a company that's an industry leader."

Hawaii native

Stephen McConnell Case, was born and raised in Hawaii and attended Punahou School. He left Hawaii to attend Williams College, a private liberal arts school in Williamstown, Mass., where he earned a bachelor's degree in political science in 1980.

Case says his interest in marketing spurred him to take a job as an assistant brands manager for two years at Cincinnati-based Procter & Gamble Co., according to a 2005 interview. After working on an unsuccessful hair conditioning product, he moved to Wichita, Kan., in 1982 to be manager of new pizza marketing at Pizza Hut Inc.

A year later, Case's older brother, Dan, then an investment banker at Hambrecht & Quist Group in San Francisco, introduced him to the CEO of failing video game maker Control Video Corp. The company hired Case to work in marketing. In 1985, Case helped found Quantum Computer Services, an online services company, from the remnants of Control Video.

It's easy to forget how primitive online communications were 20 years ago. CompuServe Corp., Prodigy Communications Corp. and Quantum offered proprietary dial-up services, providing text-only bulletin boards and chat rooms limited to subscribers. Case's key insight was that the Internet would have mass appeal if it could be made easier to use, Bushkin says.

In 1991, Quantum changed its name to America Online Inc. to capitalize on the growing popularity of the service. Case, who started at Quantum as a vice president, rose to CEO in 1993, the year AOL began sending out millions of free CD-ROMs to encourage people to sign up. AOL had attracted more than 20 million customers by the end of 1999, making it the largest online service provider.

In January 2000, Case stunned Wall Street when he announced that his upstart firm planned to buy Time Warner, the world's largest media company, for $178 billion in stock. Case says he agreed to let Time Warner CEO Gerald Levin lead the new company to get the deal done.

AOL shareholders traded their stock for control of 55 percent of the merged company. In the year it took to close the merger, AOL shares plummeted 38 percent as the Internet bubble popped, leaving Time Warner shareholders with $54 billion less than the agreed price.

AOL Time Warner woes

By 2002, Case was feeling the heat from AOL Time Warner shareholders. Levin resigned in May of that year after a drop in ad revenue helped push down the company's shares 58 percent in the 16 months he ran it. Time Warner executive Richard Parsons took over as CEO.

Two months later, the company said federal authorities were looking into allegations of improper accounting at AOL. The company, which denied the charges, would pay $450 million in settlements with the government.

"I just think it was very, very difficult to make these cultures work together," says Mark Stavish, AOL's former head of human resources, about why the merger failed. He says operating executives at Time Warner, a conglomerate that dates back to 1923, were promoting their own companies' interests rather than heeding calls to integrate with a rapidly growing Internet firm.

The failure to merge AOL's high-speed Internet service with Time Warner's Road Runner cable Internet service was just one sign that the companies weren't meshing.