Carl Icahn Against Time Warner

I have to admit that watching Carl Icahn in action is a lot of fun. Most people have that one friend who enjoys fighting. That’s Carl. I think fighting is one of the things in life that truly makes him happy.
Raider Carl is now at war with Time Warner (TWX). More specifically, their CEO Dick Parsons. It’s like when a sports announcer says, “these two teams just don’t like each other.” Let’s just say that Icahn has been somewhat critical of Time Warner’s management (“Morons are running all these companies”).
His beef is that he wants Time Warner to sell off its cable unit and increase its share buyback to $20 billion. Personally, I don’t get too emotional about share repurchases, but the fact is that the stock hasn’t done much of anything for years.
The company tried to meet Icahn half-way by raising the buyback from $5 billion to $12.5 billion. Well, Carl was not pleased. But what made him even angrier (meaning happier), is the idea of selling off AOL too cheaply. In my opinion, that would be technically impossible, but Carl has his views (“I’m going to hold the board of Time Warner personally responsible if they give away AOL the wrong way for the wrong reasons”). Um, Steve Case resigned two months ago, and the “AOL” has been taken off “AOL Time Warner.” You figure it out.
Icahn is now threatening a proxy fight. It’s rare—but not unheard of—for entire boards of directors to be tossed out. I’d love to see this happen more often. There are even companies who specialize in assisting dissident shareholders in proxy fights. It’s sometimes easy to forget, but shares of stock are claims on real assets.
Here’s my take: So what if Icahn wins? The market doesn’t hate Time Warner because of Dick Parsons. Icahn does, but not the stock market. The market hates Time Warner because it’s Time Warner. I can’t think of any media stocks that are doing well. Look at the cable stocks. Cablevision (CVC) and Comcast (CMCSK) haven’t done anything either. The market doesn’t like the industry because the industry is in rough shape. The cable industry is under threat from every direction. Even The New York Times (NYT) is fighting for more revenue.
Icahn is probably right that the music group was sold too cheaply. He’s probably right that there’s too much bureaucracy at the top. And splitting up the company could be a good idea. But I don’t see how that will “unleash” any significant shareholder value. The problem is there has to be something there in place to unleash. Spin-offs aren’t mergers in reverse. Ichan’s plan is a concept searching for value.
Cendant (CD) shareholders really were punished by a merger that hindered valuable companies. I think the same thing is going on right now at Citigroup (C). Stocks like Bear Stearns (BSC) and Lehman Brothers (LEH) are soaring while Citigroup’s stock languishes. That ain’t right.
But Time Warner’s problem isn’t its corporate structure. Or rather, it’s the least of its problems. Still, this fight will be enjoyable to watch. If Time Warner were smart, they would make the proxy vote an HBO pay-per-view event. Hire Michael Buffer. Get Mills Lane. But whatever you do, don’t buy the stock.

Posted by on December 3rd, 2005 at 9:12 pm


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