Fighting Words For Time Warner

Carl Icahn on gambits to goose the stock -- including a possible breakup

Billionaire financier Carl C. Icahn became a legend after leading the fight to break up RJR Nabisco in the mid-1990s and pocketing some $1.3 billion. From 1996 through May, 2004, his stakes in 56 companies produced profits of $2.77 billion for an annual return of 53%, according to Institutional Investor. Now he has bought 2.5% of Time Warner Inc. (TWX ) and is pressing the media conglomerate for an overhaul to goose its stock price. Ensconced in offices on the 47th floor of the General Motors Building overlooking Manhattan's Central Park, Icahn, who rarely sits down for press interviews, spoke with BusinessWeek Senior Writer Gene G. Marcial on Nov. 14. Excerpts from their conversation follow:

What do you want Time Warner CEO Richard Parsons and the board to do?

They should break up the company by spinning off to shareholders the cable division -- and possibly the publications -- and run them independently. These properties are in great demand and, if traded alone, they would greatly enhance shareholder value. And Parsons should immediately do a $20 billion stock buyback to boost the stock's value.

Time Warner's next annual meeting is in May. What is your strategy?

We are forming a slate of proposed directors to replace some or all of the board through a proxy fight, which could include Parson's ouster. With the stock stagnant at between $17 and $18 a share, how can management say they are performing as they should? The stock would be even lower were it not for our entry.

Where should the stock price be?

If my plans were put in place, the stock would be worth more than $27 a share, based on the breakup value.

Why would that happen?

In breaking up Time Warner, the managers of the units would become unchained. They would be able to perform effectively and more profitably at much lower costs. Time Warner is a company that's bloated with an unnecessary bureaucracy at the very top.

What expertise do Parsons and the board have concerning AOL (TWX ), publishing and the rest of content, and cable? Just look at their blunders over the past three years. Most of the people who pulled off the worst merger in American corporate history [the 2001 Time Warner-AOL deal] have not been fired. In fact, they are still running the show. Where is the accountability?

Parsons recently confirmed he'd be interested in selling a minority stake in AOL.

He's just had an epiphany about AOL. Where have they been for the past three years? I am concerned that Parsons and the board will make another error concerning AOL as they have done in selling Time Warner Music too cheaply.

You feel that the problems at Time Warner are not unique?

Many corporate chiefs are not qualified to run their companies. It's been that way for years. But they're not concerned about being ousted for weak performance because there is no accountability. Often, board member are cronies appointed by the very CEOs they are supposed to be watching. And they use the corporate treasury to keep themselves in power in the rare instances they are challenged in a proxy fight. The result is bloated bureaucracies. U.S. companies could easily cut costs by more than 30% and still operate profitably.

Does all this hurt anyone except shareholders?

Unless Corporate America wakes up to its problems, it will fall way behind the curve against its global competitors. More importantly, the country will not be able to meet the needs of future generations on such issues as social security, private pensions, and health-care plans. Investor activism should be encouraged to push managements into productive action.

What's changed over your career as a corporate activist?

In my early days 25 years ago, CEOs would routinely sue me to deter me from waging such battles. They don't sue me anymore. Now they know I am not going away -- and I usually win.

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