Observers Say Icahn To Face Fight in Making Anti-TW Case
Carl Icahn, again drawing a bead on Time Warner, faces an uphill battle persuading the media giant’s investors to back his plan to help oversee the firm and force it to sell assets, said corporate governance experts and other observers. Icahn, who had success with that strategy at Blockbuster, will have to swing harder at TW because it’s a far larger outfit with many more investors, said observers, but Icahn may get TW directors to take some steps he’s pushing. They include a massive share repurchase and asset sales. Time Warner, responding to Icahn, said it’s committed “to creating shareholder value.”
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Icahn aimed a volley at Time Warner in a Tues. letter to shareholders. He said directors didn’t protect shareholder value or to hold themselves accountable. AOL bought TW Jan. 11, 2001; since then, TW shares have fallen about 60% and the combined company has sold “valuable assets at prices that were at a substantial discount to their underlying value,” Icahn said: “If the board had provided the appropriate level of oversight, Time Warner management might have focused more on delivering value through the operations of the businesses or on receiving full value for the assets… Why are a majority of the same directors [who approved the AOL deal] still steering the corporate ship?” Shareholders lost out on more than $3 billion in potential sale proceeds because of poor timing and other missteps, said Icahn. He and a group of investment funds plan to nominate at least one director at Time Warner’s next annual meeting (CD Sept 14 p12). The firms have said they own stock and options representing a 2.6% stake, worth about $2 billion.
Icahn also wants Time Warner to trim costs, citing the $800 million cost of the firm’s recently built N.Y.C. hq. “Time Warner is a company sorely in need of new shareholder representation,” the letter said: “Time Warner does not recognize the need to take bold action.” Icahn’s rhetoric, regardless of the proxy fight’s outcome, will stir directors to debate how to boost the slumping stock, observers said. “He’s got the board’s attention, and certainly there will be discussion around this letter -- he’s making it clear that he’s not going to go away,” said Carol Bowie, vp-governance research, Investor Responsibility Research Center. “The tactics that he is using are ones that he has honed over the years. And he in particular has gotten results in the past.”
Icahn probably is more intent on financial results than on suing directors, said Duke U. Law Prof. James Cox. “His modus operandi has been to win the battle in the marketplace rather than in the courts,” said Cox, who teaches corporate and securities law. “The real key here is number one, what’s the stamina of the Time Warner directors to put up with this sort of bombastic rhetoric that is coming from Icahn? And the second thing is, what kind of following can he get from institutions” such as other large investors? Earlier this year, Icahn was elected to Blockbuster’s board, but Time Warner is a far more formidable target. “Everybody has got a small stake in Time Warner, that’s the big difference [from Blockbuster], he’s got to persuade a much larger number of institutions and individual investors to follow him,” said Stephen Davis, pres. of Davis Global Advisors.
Time Warner said it has improved financially by selling underperforming assets and cutting debt. The company “is stable and strong,” the firm said. But observers questioned whether the company is in good shape. “There are a lot of grounds for dismay amongst owners about the recent history of this company,” said Davis. “I don’t think he’s [Icahn] going to be able to dictate terms to the board, but what he may be able to do is to ratchet up the pressure enough so that the board meets him partway.” That may be enough to sate Icahn. “There’s no altruism here,” said Precursor CEO Scott Cleland. “He’s a savvy investor that believes that his actions can increase the value of his investment.”