Carl Icahn called for Time Warner Inc. to split into four separate companies, citing a report he commissioned that accused the media conglomerate of mismanaging for the short term.
Icahn recruited the investment bank Lazard Ltd. to study options for the company, and appeared alongside Lazard chief Bruce Wasserstein to present the proposals to financial analysts and reporters at a news conference in New York Tuesday.
The proposals were largely in line with Icahn’s previous demands for the company, and included a $20 billion share buyback as well as criticisms of Time Warner’s current management.
The Lazard report also called for Time Warner to be broken up into four companies: AOL, Time Warner Cable, publishing, and entertainment. Just a day earlier, Time Warner said it would sell its book publishing division to the French media and defense conglomerate Lagardere SCA for $537.5 million.
“Our view is that Time Warner has been managed for the short term,” said Bruce Wasserstein, the head of Lazard. “Since 2002, almost every strategic decision concerning AOL has been wrong.”
Wasserstein said AOL should have capitalized on its large position in instant messaging to build a big business in Internet-based telephone services. He also said it waited too long to offer a bundled service with corporate sibling Time Warner Cable and didn’t capitalize on the surge in Internet advertising.
However, it remains unclear whether the proposals will win over other investors. Icahn has allied himself with some other Time Warner shareholders, but collectively they control only about 3.3 percent of the company’s stock.
Time Warner’s deal in 2000 to be acquired by AOL led to enormous problems, including a plummeting share price, a management purge, failure to deliver on promises of corporate synergy and accounting improprieties at AOL. The combined company used to be called AOL Time Warner Inc.
Time Warner has since shed debt, settled shareholder lawsuits and regulatory investigations and revamped AOL’s business strategy to attract more advertising.
Despite those efforts, however, Time Warner’ stock has remained in a rut, something that Time Warner Chief Executive Dick Parsons and Icahn agree on. The stock is still roughly at the same level it was in the spring of 2002. Shares of Time Warner rose 18 cents, or 1 percent, to close at $18.54 on the New York Stock Exchange.
Time Warner promised to evaluate the proposals in Lazard’s report. In the meantime, the company said: “We are on the right path. The company is delivering.”
Icahn has also recruited Frank Biondi, a former head of Time Warner unit HBO and Viacom Inc., to serve as chief executive of Time Warner if Icahn’s drive to install a new slate of directors succeeds, which is far from certain.
In a somewhat puzzling twist, Biondi told the news conference that he hoped Jeff Bewkes, who is currently Parson’s No. 2 executive, would stay on board. Icahn has been very critical of Time Warner’s current management, which would presumably include Bewkes.
Chris Young, a director at Institutional Shareholder Services, a proxy advisory firm, said the presentation “advanced the ball a little bit,” but said his firm was still studying the situation and hadn’t decided how to advise shareholders on their votes.
Young described the arguments presented by Lazard and Icahn as “a textbook argument against the conglomerate discount.” He also noted that large conglomerates tend to “go in and out of style. Bankers build up companies and then break them up, and they earn fees on both sides.”
Last week Parsons took a swipe at Icahn, telling investors on a conference call that the company wouldn’t consider a “flavor-of-the-day” approach to boosting its lagging share price, apparently referring to moves by other media companies to spin off assets in hopes of boosting their share prices. Earlier this year Viacom Inc. split into two companies.
