Billionaire investor Carl Icahn is bracing up for a battle meant to oust Time Warner chief executive Richard Parsons. Icahn is scripting a proxy fight at Time Warner Inc's annual meeting next year to replace "some or all" of the directors and to seek the "ouster" of Parsons, according to a BusinessWeek report.
Icahn, better known as a corporate raider turned shareholder activist, and a consortium of hedge funds own a combined 2.8 per cent stake in the world's largest media company whose assets include CNN, Time magazine, Time Warner Cable and the Warner Bros. Icahn's group includes Jana Partners, SAC Capital Advisors, and Franklin Mutual Advisors.
If negotiations are successful, the enlarged group could hold a stake of more than 5 per cent and give it more power to press its case, a Reuters report said. A challenge by investors holding 5 per cent in a company is often viewed as more credible than a smaller holder. Icahn, who frequently challenges managements in companies he holds to boost shareholder value, has publicly disparaged Time Warner and its chief executive for failing to increase shareholder value.
Icahn has pressed the company to spin off its cable division and execute a $20 billion stock buyback. Complying with both demands and possibly another that calls for the divestiture of its publishing division Time Inc could boost the media conglomerate's lackluster share price, Icahn said. "If my plans were put in place, the stock would be worth more than $27 a share, based on the breakup value," Icahn told the magazine. The interview will be published in the November 28 issue of BusinessWeek.
The dissident investor contended, "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."
"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. US companies could easily cut costs by more than 30 per cent and still operate profitably," he said.
Earlier this month, Time Warner Inc reported a bigger-than-expected 80 per cent jump in quarterly profit, beating analysts' expectations, as high-speed Internet and digital phone services drew more subscribers and online advertising sales increased. Time Warner also said it more than doubled its stock buyback commitment to $12.5 billion from $5 billion. The buyback, which will occur over a 21-month period, came in response to concerns by Icahn about the company's laggard stock price.
Icahn had blamed the Times Warner board for approving past blunders, including the merger between Time Warner and America Online in 2001 and the sale of some assets, including Warner Music and a 50 per cent stake in cable network Comedy Central. He termed both sales to be "fire sales," and he said both assets have appreciated more than 80 per cent since sales in 2003.
He also flayed the Time Warner board for not buying movie studio Metro-Goldwyn-Mayer, which was purchased by Sony. He said the company's cost structure was bloated, pointing specifically to the company's New York headquarters that opened in 2004, which cost an estimated $800 million.
"Given this extravagance and the failure to cut costs at businesses like Warner Music described above, we intend to hire, in the next few weeks, an industry consultant to analyse and compare Time Warner's costs to its peers on a number of different levels to determine what other excess fat may lie in the company's cost structure, including, but not limited to, perquisites afforded to the board and top management," he said.
Icahn said that 12 of the 15 members of the board voted to approve the merger between Time Warner and AOL, either from their position on the AOL board or the Time Warner board at the time the deal was announced in January 2000. "The lingering presence of these individuals forces us to ask, why are a majority of the same directors who signed off on the disastrous AOL merger still steering the corporate ship?" he wrote in a letter to the board.
