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Bertelsmann CEO steps down from AOL board

America Online appoints co-chairman Kenneth Novack to replace Thomas Middelhoff, chief executive of German media giant Bertelsmann, on the company's board of directors.

Kenneth Novack America Online has appointed co-chairman Kenneth Novack to replace Thomas Middelhoff, chief executive of German media giant Bertelsmann, on the company's board of directors.

The timing is significant. Middelhoff's resignation comes just weeks after AOL announced that it plans to merge with Time Warner, a competitor to Bertelsmann.

In addition, Time Warner yesterday announced its intention to acquire Britain's EMI Group for $1.3 billion, or $1.65 per share, in cash. The deal will create a music giant valued at $20 billion.

Combined with AOL, the companies will establish a significant foothold in online music distribution and digital downloading. Bertelsmann's music division, BMG Entertainment, competes with both Warner Music and EMI.

Not surprisingly, Middelhoff cited the merger as the primary reason for his departure.

"As a result of the merger with Time Warner, a competitor of Bertelsmann, it's inappropriate for me to continue as a member of the AOL board," Middelhoff said in a statement.

Middelhoff was elected to the board in 1995, when AOL and Bertelsmann entered a joint venture to create AOL Europe. Bertelsmann also took a 5 percent stake in AOL with the deal. Since then, Bertelsmann has divested its stake to 0.65 percent. Despite Middelhoff's resignation, Bertelsmann will retain its minimal stake in AOL.

AOL Europe has 3 million paying members. The company runs AOL and CompuServe online services in nine European countries including Germany, France and the United Kingdom. The company also runs Netscape Online, the "free" ISP based in the United Kingdom, which was launched to compete with Britain's Freeserve.

In addition, the two companies launched an AOL Australia joint venture in October 1998.

"I have relied on Thomas a great deal for counsel, strategic advice and for the unique perspective he brings to any challenge or issue," AOL chief executive Steve Case said in a statement. "He will be missed."

Meanwhile, Kenneth Novack's You've got Time Warner appointment is a step up for one of the primary players behind AOL's merger with Time Warner. Novack, who has been with AOL for 11 years, is serving on the merger integration team with AOL president Robert Pittman, Time Warner president Richard Parsons, and Time Warner Digital Media chairman Richard Bressler.

Novack and Bressler were highlighted as the primary negotiators in putting together the AOL-Time Warner megamerger. Novack also negotiated AOL's acquisition of Netscape Communications in 1998 and the deal's accompanying alliance with Sun Microsystems.

Novack oversees AOL's legal department and AOL Investments, the company's venture capital arm.

"Ken Novack has been a trusted adviser to me and the board for more than a decade," AOL's Case said. "Ken's election to the board today is recognition of the key role he has played at the company and the vital role he will continue to play in the years ahead."