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Bertelsmann Leaves AOL Board

Germany publishing and media house Bertelsmann AG Tuesday finally came to a decision regarding its awkward position on America Online Inc.'s board of directors.

The continued presence of Thomas Middelhoff, Bertelsmann AG's chairman and chief executive officer, AOL's board was one of the first question marks to hit once the ISP of the masses announced its decision to take over Time Warner Inc., the world's largest media company.

Initially, all the players shrugged off concerns about Bertelsmann's no longer certain position in AOL's game plan. The official reaction: the activities of AOL Europe were entirely separate from the $182 billion merger, to which Time Warner brought a mass of overseas content resources. Today, Bertelsmann's strange position was resolved by a departure from AOL's Board.

"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.

AOL Vice Chairman Kenneth J. Novack, who was described as a "key architect" of the Time Warner (TWX) merger, will replace Middelhoff on the board. Novack will also serve on the four-member committee that will spearhead the integration efforts.

Middelhoff was elected to the AOL's Board in May 1995; during same time the two companies teamed up for the development of 50-50 joint venture AOL Europe. At the time, AOL's (AOL) total network head count was two million, while latest head count put the figure at more than 22 million.

"Thomas is a world-class business leader, who has been a very active, effective and respected member of our board for the past five years," said AOL's Chairman and Chief Executive Officer Steve Case. " I have relied on Thomas a great deal for counsel, strategic advice and for the unique perspective he brings to any challenge or issue. He will be missed."

Case added that he that "the close partnership between AOL and Bertelsmann will certainly continue."

AOL Europe boasts 3 million members, with 1 million from the AOL Germany property alone. After months of struggling with telecom regulations in the region, AOL finally introduced a free ISP service in the U.K. and flat fees in several other European properties. AOL and Bertelsmann also launched 50-50 venture for AOL Australia, and Bertelsmann will keep its minority stake in AOL. Still, the import ISP has not been as well-received overseas as it had initially hoped.

Speculation had swirled that the two companies might list AOL Europe on an European exchange over the summer, but recent reports say that the venture has no immediate designs for an IPO.

Time Warner's recent merger with EMI also dents into Bertelsmann's overall business model -- the music tie-up may interfere with Bertelsmann's goals in the music industry as well.