Malone and Icahn: All Talk?
By Ronald Grover
It seems to be open season on media giants these days. Two weeks back, a clearly disgruntled John Malone took aim at Rupert Murdoch, criticizing the News Corp. (NWS ) chairman for what Malone called "empire building" and encouraging Murdoch to launch "a systematic process of focusing a little bit more on shareholder returns."
A week later, corporate raider Carl Icahn, who has been buying shares in Time Warner (TWX ), blasted that company's management, saying it "had not moved quickly enough and it has not proposed measures" that Icahn feels are necessary to enhance shareholder values.
Both Malone and Icahn have legitimately earned their reputations as bare-knuckled brawlers. But do either of these dealmakers have a genuine plan to improve the fortunes of the companies they've taken aim at?
I doubt it. In fact, Malone, whose Liberty Media (L ) owns an 18% stake in News Corp., told analysts on a recent conference call that he considers the company to be "very well run" and says he's a long-term investor. Icahn says Time Warner's management, led by Chairman and CEO Dick Parsons, has done "a commendable job" dealing with its myriad legal and operational issues.
So what are Malone and Icahn up to? Like much of what goes on in the media business, it's a matter of style over substance. These two savvy investors know they can rile Wall Street whenever they make a move -- or make noise.
Indeed, the price of Time Warner's shares jumped by nearly 3% in the two weeks after word began leaking out that Icahn was amassing stock. Similarly, News Corp.'s stock spiked last November when Liberty said it had converted much of its 18% shares from nonvoting to voting shares.
The problem is, this kind of ruckus wears off after a while. Since the Malone impact News Corp. stock has come back down to where it was back in November.
Investors have soured on the media sector. Ad sales are moving to the Internet, the box office stinks, and companies have gotten so big that no one blockbuster, hit TV show, or acquisition can really boost a stock. Viacom's Sumner Redstone seems to be one of the few moguls who gets it. Witness his decision to split his company into two.
Still, it appears that Malone and Icahn want to jump-start the media companies in their sights at a time when nothing but headline-grabbing threats seems capable of doing it. Icahn can clearly wave some past successes at Time Warner CEO Parsons, such as the masterful proxy victory in May that put him and two allies on the board of misfiring video giant Blockbuster (BBI) . You think that hasn't made an impression on a Time Warner board that's no doubt shell-shocked by setting aside $3 billion to settle shareholder lawsuits in the wake of its bungled AOL acquisition?
The larger question is whether Malone or Icahn can do more than simply agitate from the outside. I suspect not. Parsons, a master of shareholder diplomacy, has sat down with the onetime greenmailer, and Icahn described the meeting as "productive." Still, Time Warner seems have said "I don't think so" to Icahn's demands that it buy back $20 billion in stock and spin off its cable-TV unit.
Time Warner already has said it will repurchase $5 billion in stock and sell 15% of its cable unit. "We have a process in place where we carefully review a range of options to realize the value in stock," says a Time Warner spokesman.
Malone's position is a little bit stickier. Murdoch, whose family controls News Corp. and owns 29.5% of its stock, has erected a takeover barrier with a complicated shareholder-rights plan that expires in late 2007. And the company is buying back $3 billion of its stock over the next two years to boost its value -- although the repurchase plan isn't as much as Malone wants.
What Malone really wants is to use his high-decibel cage-rattling to force a swap of assets with Murdoch. He has already said he would take News Corp.'s majority stake in the National Geographic channel in exchange for some of his shares. But talks between the two titans have dragged on, and Murdoch hasn't flinched.
Moreover, with the News Corp. shareholder-rights plan firmly blocking Malone, Murdoch also seems to be kissing off his onetime ally. "We've frankly moved on," Murdoch told analysts of his talks with Malone.
Ironically, Malone's Liberty Media may well benefit from having Murdoch block it from acquiring more shares. "Since Liberty Media acquired an 18% voting stake in News Corp., the perception of an overhang has plagued News Corp. shares," wrote Fulcrum Global Partners analyst Rich Greenfield, who rates News Corp a buy. "The extension of News Corp.'s poison pill should remove any remaining investor concern vis-à-vis Liberty Media's intentions."
Translation: With Malone in a box, News Corp. can continue to run its lucrative cable-TV business and its growing satellite operations without worrying that Malone will stir up any more trouble. The upside for Malone? If Greenfield is right, the easing of tensions should lift News Corp. stock, of which Malone owns 92 million shares.
Then again, that's the entire point, isn't it? If you can't get inside the company and change it, make enough noise to get the stock moving upward.
This all but ensures that Malone and Icahn will continue to beat the drums. Icahn, who seems awful quick with a press release these days, says he will continue to meet with Parsons. And chances are Malone will continue to pop off whenever he can.
That's what some Wall Street legends do. And it may continue to move the stock. But don't be surprised if a lot of folks on Wall Street -- maybe even the guys who are making the noise -- start to unload their shares when the ruckus is the loudest.
Grover is BusinessWeek's Los Angeles bureau chief
Edited by Patricia O'Connell