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Behind the scenes of the world's largest merger

Sources explain that the courtship that resulted in the world's largest merger was an on-again, off-again affair that owes its success to two unknown corporate players.

The courtship that resulted in the largest merger in history was an on-again, off-again affair that owes much of its success to two relatively unknown corporate players.

Steve Case, chairman and CEO of You've got Time Warner America Online, got the ball rolling last October when he phoned Gerald Levin, chairman and CEO at media giant Time Warner. Less than three months later, the blockbuster deal was sealed during dinner last Thursday at Case's Virginia home.

Yet behind the executives' actions, Time Warner Digital Media chairman Rich Bressler and AOL vice chairman Ken Novack "were really responsible for this transaction," CEO Levin acknowledged the day the deal was announced.

Novack is a veteran Ken Novack deal maker at AOL, having represented the company in negotiations that resulted in joint ventures with Tribune Company, Japan's Mitsui and German publishing giant Bertelsmann.

He also played key roles in AOL's 1992 initial public offering and in the acquisition of Internet service provider CompuServe.

Bressler has held several roles at Time Warner, including vice president and chief financial officer. He is responsible for all corporate strategic and financial activities, according to the company's Web site.

After Case's initial discussion with Levin, Novack took the reins, notifying the company's law firm, Simpson Thacher & Bartlett, that it should prepare for the possible merger, said a source close to the deal.

Rich Bressler Numerous discussions involving Novack and Bressler resulted in a draft of an agreement, which Simpson Thacher & Bartlett sent to AOL, but not to Time Warner.

"AOL told its law firm they had no deal yet, so don't send the draft to Time Warner," said a source familiar with the discussions. The big issues that separated the companies were management of the combined firm and the financial structure of the deal, he added.

As a result, another source familiar with the deal said that "things fell apart a week before Thanksgiving. (Executives) said they weren't going to bridge these issues, and no more conversations were scheduled after that."

Bressler and Novack, however, kept plugging away throughout December.

Finally, a breakthrough in negotiations occurred last Thursday, when Case again called Levin to request that they and their executives meet at his home in Virginia, a source said.

The two sides finally reached a tentative agreement, putting the possibility of the megamerger back on the table. The companies also benefited from early discussions, one source said.

"Since we had a draft, we didn't have to reinvent the wheel," the source said.

Nonetheless, it proved to be a jam-packed three days. One source said that the lead attorney for Time Warner's outside law firm, Cravath Swaine & Moore, was vacationing in the Carribean when he received an early call informing him that the deal was back on and had to be completed before financial markets opened Monday, Jan. 10.

Both companies set up camps at the New York offices of their respective law firms, located just a short distance from each other in Manhattan.

Time Warner's Cravath Swaine & Moore commandeered the 48th and 49th floors of their own building to house some 50 executives, attorneys, bankers and support staff.

Their cafeteria was also tapped to work overtime, providing breakfasts and dinners as well as snack food such as chocolate and popcorn for late-night sessions.

Meanwhile, Simpson Thacher & Bartlett also set up shop in the top two floors of their 31-story building across from Manhattan's Grand Central station.

"They wanted a quick deal since it was a fixed-exchange ratio. If this had leaked out, Time Warner's stock would have shot through the roof and it would have appeared AOL was paying less of a premium than it did," said one of the sources.

During the whirlwind weekend, sources described Bressler as a detailed negotiator and Novack as a no-nonsense deal maker.

"Novack was crisp and no BS. When he told Bressler he needed something, there wasn't a lot of posturing," said one source.

For example, Novack told Bressler it was crucial that AOL president and chief operating officer Bob Pittman serve as co-chief operating officer of AOL Time Warner, a source said. Additionally, Pittman's appointment could only be overturned by the board that would be evenly stocked by directors from both companies, Novack stressed.

"He said there would be no deal if that was not the case," said the source. "If he was (posturing), he would have been more far-reaching to see what he could get."

And as the negotiations went non-stop over the weekend, one partner at Cravath Swaine & Moore could be seen grabbing some shut-eye on the floor of his office during breaks in the talks, a source added.

Time Warner's board met for more than seven hours Sunday evening to vote on the proposed merger, according to a source. AOL directors also gathered for four hours that same evening to agree on the deal terms.

Finally, with all the votes cast, Levin called Case to congratulate him on the blockbuster deal Sunday night. The remaining legal papers were signed early Monday morning.