|Carl Icahn wants to breakup Time-Warner to increase the overall value of its parts.
Icahn has been pushing for a breakup as a way to increase shareholder value. And we’ve already witnessed another media conglomerate, Viacom, split into two. So Icahn has a nice fresh precedent to point to. Those close to Icahn have whispered he’d like to see AOL, the TV assets and the movie studies combined with an Internet portal, and spin off the publishing and cable divisions. Media mogul names have been thrown around too, like Barry Diller and Frank Biondi, who accepted the role of would-be CEO. Later today at Manhattan’s St. Regis Hotel, Icahn and Lazard Chairman Bruce Wasserstein promise to explain exactly what they are thinking in a report said to be several hundred pages. (After 3:30 today, the group's Web site, www.enhancetimewarner.com, will go live.)
And there is a sentiment -- long voiced over Time Warner’s tumultuous and torturous history of mergers and acquisitions -- that some of the kids, divisions like publishing house Time Inc., Turner Broadcasting, HBO and Warner Bros. Studios, are pretty grown up in their own right, and should be free to go their own ways. Insiders at Time Inc. have long groused that they would have been better off being left alone, especially after the disastrous combination with America Online, a deal that the company only recently seems to have made some kind of peace with. As far as marketers are concerned, the combined Time Warner’s limited success in cross-platform selling doesn’t seem to argue much in favor of keeping it together.
The push to integrate AOL into the other Time Warner businesses by former Chairman-CEO Steve Case and thus prove the value of the deal to the Street was disastrous on any number of levels, not least of all because it meant the divisions were unable to explore an independent online model that would work for their properties, thanks to the handcuffs of having to make Web plays fit into the subscription only, closed-door model of AOL. A model, it should be noted, that was recently abandoned in favor of creating a portal to rival Yahoo and MSN. That switch meant that AOL was suddenly incredibly attractive as a partner, and that Time Warner was able to make a very attractive match with Web megastar Google.
Current management has also not been averse to selling off or restructuring its ownership of divisions. Time Warner last year began to ready a spinoff of part of its cable business when its acquisition of cable operator Adelphia wraps up. (Time Warner controls a 79% stake in Time Warner Cable, and Comcast controls a 21% stake. The two rivals have teamed up to buy the cable assets of Adelphia. TWC will pay Adelphia shareholders about $9 billion in cash and grant them a 16% stake in TWC, which will then become a public company. Comcast plans to contribute $3.5 billion in cash to the deal, and after the two companies swap some assets, Comcast will no longer own any piece of TWC.)
And already this week, Time Warner sealed the deal to sell its book division, which includes Warner Books and Little Brown and Co., to Lagardere. At the end of 2003, Warner Music Group was sold to a group of investors led by Edgar Bronfman Jr. And its flagging broadcasting network, the WB, unveiled its plan last month to join forces with CBS Corp.'s UPN to create a joint venture for a fifth broadcast network, the CW. None of these moves have significantly changed its stock price, which has hovered around $18 for the past four years.
None of this will deter Icahn, however, who has a long, tenacious history of dogging a company until he gets what he wants. He’s managed to line up shareholders to his side that together equal 3.1% of the company. Steve Case has also spoken out on the side of a break up. And reports surfaced yesterday that Capital Research and Management, the biggest institutional shareholder in Time Warner with more than 5%, was coming around to Icahn’s point of view.
No matter how insistent Parsons and Bewkes are that the company is being managed in the best possible way, they now will have to spend the time to prepare an answer to Icahn’s proposals before the May shareholders meeting. That’s the one where Icahn has said he will put up his own board of directors for a vote, in the hopes that he can unseat the current management in favor of a group that will presumably follow his plan.