Shadow Man

Long before it merged with America Online, Time Warner began holding its annual shareholder meetings at Harlem's Apollo Theater. But for the gathering this Friday, the company chose the Lans-downe Resort in Virginia, near the AOL unit's headquarters. The move looks like a standard Big Business play: if you only have bad news, like a slumping stock and a deepening investigation of accounting irregularities, hold your meeting in the boonies. It also will be the last such meeting run by chairman Steve Case, who initiated the ill-fated $350 billion merger. A shareholder uprising pushed him to resign his job, effective Friday. But that's not enough of a demotion to satisfy AOL's biggest shareholder, who plans to withhold his 305 million, or 7 percent of, AOL shares in the vote to re-elect Case as a director. His message: clean out your e-mail and go.

Who helped push Case out of the top job, and now wants him gone? Gordon Crawford. He's the invisible mogul, a mutual-fund manager for mammoth Capital Research and Management who plays a powerful role behind the scenes to cajole, charm or push heavy hitters--Ted Turner, Rupert Murdoch, Sumner Redstone and others--to reshape the media business in ways that will make his investments pay off. It was Crawford who arranged the initial meeting that led to Redstone's Viacom acquiring Mel Karmazin's CBS, NEWSWEEK has learned. Another previously undisclosed move: before Karmazin and CBS entered the picture, Crawford lobbied Redstone to woo NBC chairman Bob Wright to help him run Viacom.

But now that the media-stock bubble has burst, Crawford, 56, is coming out of the shadows to clean up the mess. Crawford wouldn't agree to be interviewed for this article, but people who know him say he is stewing about the losses, the scandals, the broken trust. "I think he's genuinely, deeply angry," says Barry Diller, CEO of USA Interactive.

Crawford is, in theory, the ideal shareholder for a financial system that clearly needs stronger checks and balances. He does his homework, invests for the long term and has enough at stake to be a tough watchdog. Crawford meets at least six times a year with Karmazin. Corporate- governance experts applaud his recent and open assertiveness. "He's going to be the model,'' says Nell Minow, who runs

But in practice, Crawford's role as an investor is far more complicated. Given that he has so much access to top executives--he even vacations with Turner--does he have an unfair advantage over other investors? It's one thing to get information that's unavailable to others. It's another to get such information and trade on it. That can lead to legal troubles. To be sure, no one suggests that Crawford has ever done anything remotely illegal, and people who know him say he scrupulously avoids asking about earnings forecasts or specific acquistion plans. And it's not surprising, given his widespread holdings, that he's invested in companies before they are taken over. But a review of his funds shows he sometimes had a knack for investing in companies not long before they're party to a deal. All this, in part, leads to questions about his remarkable access. The key test, says Minow: "You want to make sure he's at arm's length.''

But it's hard for anyone to stiff-arm Gordy Crawford. By all accounts, he's a decent, regular guy. One media CEO says Crawford is "remarkable by his ordinariness.'' Jane Fonda, Turner's ex-wife, says that before she met Crawford, she had "envisioned a shark like tiger--never someone like Gordy." As Fonda got to know Crawford and his wife, Dona--they fished and rode horses together--she says their "centered, rooted goodness'' moved her. Crawford has none of the trappings of the mogul lifestyle. Instead, he's won the trust of media executives with his deep commitment to, and understanding of, the industry.

Perhaps Crawford's earliest and closest business ties were with the late Steve Ross of Warner Communications. Crawford invested in Warner after he joined Capital Research in 1971. Ross and Crawford chatted regularly, often about deals, recalls Ed Aboodi, a top Ross associate. Crawford "knew how to be discreet, and how to avoid winding up with insider information," he says. At least one deal worked better for Crawford than for Warner. In 1976 he persuaded Warner to buy Atari, which Crawford's firm had backed. In the early 1980s Atari imploded, nearly ruining Warner. But Crawford spotted the troubles early and sold his Warner stake for a big gain. And then, with Warner's stock deflated, he reinvested. Crawford has told people he tried to warn Warner that Atari was beginning to sink. In 1989 Crawford, a large investor in both Time and Warner, helped sway votes to merge the firms.

The deal helped trigger a consolidation wave. Crawford brokered the meetings that led to one deal, the 1999 marriage of Viacom and CBS. "I asked Gordy if he would be willing to call Sumner [Redstone] on my behalf," recalls Karmazin, CBS's CEO, noting that Redstone had not returned his calls. Redstone met Karmazin, which led to their $46 billion deal. Karmazin says he never told Crawford why he was pursuing Redstone, so that Crawford wouldn't have "information he otherwise shouldn't have."

Still, Crawford appeared to make smart purchases of CBS shares. Sometime during the six months prior to the Karmazin-Redstone meeting on Aug. 11, 1999, Crawford's Growth Fund of America acquired 1 million CBS shares (the precise timing of the purchases aren't disclosed in filings). On Sept. 8, Redstone and Karmazin announced a deal. The fund bought 1,625,427 more shares from the end of August 1999 through February 2000. A second fund managed by Crawford more than doubled its CBS stake between May and November 1999. The stock took off.

In the mid-1990s, Crawford became a big believer in Barry Diller, and now is a large shareholder in USA Interactive, Diller's growing online giant. Diller says he often tests his own instincts against Crawford's, "particularly in areas where you are thinking about being acquisitive." He hastens to add that they would never violate securities laws; "we're not stupid." --Crawford was certainly in the right place at the right time on Diller's deal last week to buy With a 7.5 percent stake in LendingTree, Crawford's Smallcap World was a big investor. Crawford, whose funds own numerous stocks in the online sector, paid almost $12 each for his first 400,000 LendingTree shares in April 2002. (A sibling company of Capital Research already owned a LendingTree stake.) By the year-end, his funds owned 1.3 million more shares priced at no more than $14 each. Diller's proposed price for LendingTree: about $22 a share.

Still, nothing ever displaced Time Warner as Crawford's most important investment. In the late 1990s the company was riding high--in part because of its 1995 purchase of Turner Broadcasting--though not as high as dot-coms like AOL. So Gerald Levin, Time Warner's CEO, welcomed an overture from Case to merge with AOL. Crawford, predictably, was in the mix, and his role may be straining his ties with Turner. Turner, who could have blocked the deal because of his huge Time Warner holding, has told top media execs that Crawford advised him to support the deal before it became public. Yet, NEWSWEEK has learned, Crawford has been disputing Turner's account and just last week admonished Turner's camp to quit it.

But Crawford's enthusiastic support for the deal was odd, at first glance, in one respect. For years, Capital Research had owned a big AOL stake. In 1998, when AOL's stock almost quadrupled, they sold it, concluding that it was ridiculously overvalued, reflecting "overzealous enthusiasm and speculation." So why would Crawford want to accept it as payment for his valuable Time Warner shares? He apparently believed the price AOL was paying was high enough to be a good deal. As it turned out, their initial call was right. The overvalued AOL stock set up the fall that obliterated more than $200 billion in shareholder value.

In a sense, Crawford is the only one left of the original AOL cast. Levin is gone. Case is effectively out. Turner, in a remarkable move, recently dumped more than half of his remaining shares. So Crawford now is acting the role of the powerful outsider to publicly shame Case (his ballot this Friday won't defeat Case, though it will be a damning no-confidence vote). At the same time, Crawford is working behind the scenes to help stabilize AOL. He quietly endorsed the promotion of two Time Warner veterans. And Crawford is buying more AOL stock, now that it's cheap. He can't wait for it to pay off. Then he'll be able to retire to the shadows once again.