Just Don't Call Him A Raider

Carl Icahn, who now styles himself a shareholder activist, prepares for battle

Carl Icahn has been chasing bogeymen for much of his life. In the early years the man who would come to symbolize the 1980s corporate raider went after slow-moving companies. Overpaid executives, timid boards, even a biotech company or two fell victim to the pioneer who helped usher "greenmail" into the takeover playbook. Over three decades, he forced giants such as Phillips Petroleum Co. (P ) and American Can to the table. These days the 71-year-old has found a new bogeyman: private equity investors.

In a twist of logic that might baffle those who know his history, Icahn, the raider turned self-styled "shareholder activist," says it's the private equity investors who are today's raiders. They go after companies with mounds of cash and undervalued assets, then rip them apart and enjoy the spoils. How different is that from Icahn? Not much. But for Icahn, who will likely wage four or more proxy battles this spring, it's enough. "Cash is a great asset," he says. "But if private equity inventors get their hands on it, they'll reap the benefit instead of the shareholder." And Icahn? When he goes after a company, most often it stays public, and he says shareholders who take the ride with him gain from his activism.

Carl Icahn, white knight for the common man? Hard to put a frame on that picture. But as Icahn prepares for a possible proxy battle to force himself onto the board of Motorola Inc. (MOT ), he says he's fighting to give shareholders a hefty bonus by forcing the cell-phone maker to buy back a chunk of its stock. That's unless his presence lures private equity buyers into a bidding war that would generate serious upside for shareholders--including Icahn and his investors, who already own 1.39% of the company and are probably buying more.

Four filings in one proxy season would likely put Icahn in the raider hall of fame. Armed with a war chest approaching $6 billion, he has filed proxies to elect board members at forest-products company Temple-Inland (TIN ) and homebuilder WCI Communities (WCI ). He may be contemplating a proxy battle against biotech company MedImmune (MEDI ), where he recently bought an $89 million stake, and might push the company to put itself on the block. At the same time, Icahn's 86.5%-owned holding company, American Real Estate Partners, is finalizing a $5.3 billion takeover of auto-parts maker Lear Corp. (LEA ). "I don't know if this is a record, but he's certainly at the front of the shareholder activist buffet line," says Patrick McGurn, executive vice-president of proxy consultant firm Institutional Shareholder Services.


Motorola's board has been mulling ways to respond to Icahn. The odds of Motorola voluntarily giving him a board seat are slim. As CEO Edward J. Zander surely knows, giving Icahn even one seat can be dangerous. "He'll ask questions, challenge the CEO, and then the rest of the board starts to question," says Lawrence A. Rand, a co-founder of public-relations firm Kekst & Co., which has represented companies targeted by Icahn. That's how Icahn effectively took control of ImClone Systems Inc. (IMCL ) last year with only 13.8% of the company's stock. He hired a board member to do his bidding, got himself added to the board, and then snipped from the inside. Eventually, ImClone's chairman quit and was replaced by Icahn.

Even if Icahn doesn't try to grab Motorola for himself, the publicity generated by his demands could put the company into play. Private equity investors are almost certainly eyeing the company, Icahn says. Motorola isn't commenting, but some analysts agree it's attractive. Although it reported dismal profit margins in its cell-phone unit recently, it's a market leader with $11.2 billion in cash, little debt, and a $46 billion market cap that is historically low at one times sales. "If you cut back on expenses and big growth efforts, it's a screaming buy," says a Wall Street analyst.

Icahn's model for Motorola is almost certainly Kerr-McGee Corp., the Oklahoma-based oil and gas company caught in Icahn's crosshairs in early 2005. Icahn bought in at $71.60 a share and launched a proxy fight that forced management to spend $4 billion to buy back 29% of its stock at $85 a share. Icahn made about $370 million when the company was put up for sale a year later.

What drives Icahn, who vacations on a 188-ft. yacht and has dabbled with owning racehorses, to stay in the takeover business? "It's fun," he said recently from Las Vegas, where he was celebrating his 71st birthday with his wife, Gail. (They were touring one of his properties, the 2,444-room Stratosphere casino, which he bought out of bankruptcy in 1997.) Moreover, global financial conditions make it tough to quit: The world is awash in cash, interest rates are low, and executives are coming under increased scrutiny. In the past two years, Icahn has raised $1.8 billion. He takes 25% of the profits from his funds, and his net worth is close to $10 billion.

Icahn wages his battles from a suite on the 47th floor of a tower on New York's Fifth Avenue, aided by a staff of 20-odd lawyers and research analysts. He often works until 2:30 a.m., and has 22 phones at his East Hampton (N.Y.) home to help him stay in touch at all hours. At work, his staff pores over hundreds of potential targets to find its prey. "Sometimes it's like Paul Newman in The Color of Money," he says, recalling the pool-hustler flick. "When you hear those balls click, you know you've hit it just right." Motorola, he says, was a solid thwack.


Icahn can still launch a nasty proxy fight--just ask Blockbuster Inc. (BBI ) CEO John F. Antioco, who was bounced from his own board in a 2005 proxy fight despite getting the thumbs-up from shareholder rights groups. When Antioco said he would quit if he wasn't reelected, Icahn pounced, accusing him of "blackmailing" Blockbuster shareholders to collect on a $50 million severance arrangement. Antioco didn't return calls seeking comment. With Icahn's support, the board eventually brought back Antioco, avoiding the payout.

Other CEOs have avoided Icahn's ire with a more solicitous approach. Time Warner (TWX ) Chairman Richard D. Parsons says he made the six-block walk to Icahn's office as a show of courtesy, and then sounded out investors who liked Icahn's plan to hike the 2006 stock buyback. Icahn, who made $250 million on the buybacks and still owns 20 million Time Warner shares, wanted Parsons to do more. But he says the two are friendly and that Time Warner "is a great company."

When Icahn wants something, though, he can be relentless. Kerr-McGee executives recalled in a 2005 lawsuit that one Icahn aide would call or e-mail several times a day, pressing a plan to increase a stock buyback and to sell off its chemical business. Former ImClone insiders recall that Icahn himself would badger former Chairman David M. Kies with endless phone calls, once even tracking Kies down on a pre-bar mitzvah trip with his son.

Icahn and Motorola's Zander haven't yet spoken but will likely meet soon, according to sources. Those who make the effort to cozy up find him charming to a fault, even funny. During the Kerr-McGee fight, he sang songs from the musical Oklahoma! to break the tension, recalls Barry Rothstein, a managing director of JANA Partners and an Icahn ally. "He can actually be a funny guy," says former Viacom (VIA ) President Frank J. Biondi, who was recruited last year to head Icahn's slate in an abandoned proxy fight to unseat Time Warner board members. "Of course, I'm not sure CEOs on the other end are always laughing."

By Ronald Grover, with Roger O. Crockett in Chicago

— With assistance by Roger O Crockett

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