Rumors Continue on Levin’s Departure

Time Warner Inc. options rose Wednesday on fresh speculation that Chairman Gerald Levin will step aside, according to Wall Street sources. Time Warner denied the rumors, which have plagued Levin intermittently for two years because of the company’s stagnant stock price.

Options to buy Time Warner shares at $40 in March rose 29% in heavy trading. In effect, investors were betting that Levin will be out by that month, bumping up Time Warner’s stock price. Time Warner shares closed unchanged at $37.75 on the New York Stock Exchange.

Ed Adler, a Time Warner spokesman, called the speculation about Levin “ludicrous.” Several large Time Warner shareholders said they doubt the rumor is true.

“Levin has no problem in the short run,” said Mario Gabelli, whose Gabelli family of mutual funds owns Time Warner shares. “I think he’s done a good job. The Turner deal was brilliant.”

Time Warner acquired Turner Broadcasting System Inc. last year for $7.34 billion, adding cable networks such as the Cartoon Network and Cable News Network to a leading music, movie and television supplier. But the merger also fueled speculation that Levin might eventually be replaced by Ted Turner, the company’s new vice chairman and now the largest Time Warner shareholder.

Shareholders have been unhappy because Time Warner’s stock price has been flat for most of Levin’s tenure, while its debt has swelled. Levin has enjoyed the full support of his board, but sources close to the company say that for the first time he is coming under fire from some directors who believe his ouster would reap public relations benefits.

Company executives and large shareholders say Turner continues to support Levin, making his ouster by the board unlikely. As one investor says: “It would be hard for the board to remove Jerry when they have approved all his actions over the last year. They are just as responsible as he is for the state of the company.”

Turner, however, is shaking up what had been a very small and cohesive board, calling into question how resources are allocated and the rubber-stamp mentality that has long prevailed. He has also made it clear to investors that he is as interested as they are in a higher stock price, vowing soon after the merger to do what shareholders had long been urging: reducing the company’s $17.5 billion in debt by selling off cable operations.

Levin, a longtime cable advocate, soon agreed to reverse his stance. But the sale of cable may not come as quickly as Wall Street would like. The cable market is more depressed than it was six months ago because of delays in introducing new technologies and the healthy growth of rival digital satellite services.

“Jerry is trying to get a premium price for cable at a time when everyone is saying the cable business is in trouble,” said one large Time Warner shareholder. “His options are to wait and hope, or bite the bullet and hope the street doesn’t penalize him for selling at a low price.”

Many investors believe Levin will wait rather than sell at a fire-sale price to the most likely buyer, US West New Media, which already owns about 25% of a partnership that holds most of Time Warner cable systems, Home Box Office and the Warner Bros. studios. The partners have been negotiating to unwind the venture for two years by exchanging entertainment assets for control of the cable systems.