Says AOL, Time Inc., Time Warner Cable and Film Units Should Trade Separately

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NEW YORK ( -- Billionaire financier Carl Icahn today finally detailed his plan for Time Warner if he manages to take control in its May elections: He will dismember it.
Photo: AP
Corporate raider Carl Icahn wants to chop Time-Warner apart.
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During a presentation in a lavish ballroom at the St. Regis Hotel in New York, Mr. Icahn and his allies said Time Warner operates without a long-term strategy, resulting in underestimations of its cash flow, underinvestment in its businesses, ineffectual deal-making and bloated overhead.

His formal plan arrived six months after rumors began to swirl that the takeover artist would propose breaking up the company. Months of innuendo and maneuvering followed in the interim, capped last week by conference-call breast-beating from Time Warner executives and Mr. Icahn’s recruitment of Frank Biondi, the former CEO of Viacom and Universal Studios, to lead his slate of candidates for the board.

Unlock true value
Mr. Icahn said the true value of Time Warner’s assets would be unlocked if only they were separated into four independent, publicly-traded units: AOL, Time Inc., Time Warner Cable and its network and filmed entertainment operations. As individual companies, he said, each could create its own long-term strategy, retain the size and scale to function effectively and appeal to a distinct set of investors. Together, he said, the company’s share price would never reach the value he believes it should.

“It does not need a conglomerate structure centered at Columbus Circle that second-guesses,” Mr. Icahn said. “There are great conflicts between the structures that we have today.” He recalled comments made several years ago by Richard D. Parsons, Time Warner's chairman-CEO, who implied the company would simplify its structure and story for investors. “Has Dick Parsons done anything?” Mr. Icahn asked. “No.”

His presentation began with a report from Lazard Freres & Co., the investment bank that Mr. Icahn hired last November to help lead a proxy fight to take over the board of directors. Lazard Chairman Bruce Wasserstein said, in an unusual public pitch, that short-term thinking among Time Warner leaders has cost shareholders “at least a staggering $40 billion.”

Mr. Wasserstein also insisted that although Mr. Icahn hired Lazard to analyze Time Warner, Lazard did so without partiality. “There is no compelling reason today for these businesses to remain together,” he told the crowd of hundreds of reporters and analysts present as well as viewers watching a live Webcast. There are no synergies to point to, he said, only “dyssynergies.”

In a statement, Time Warner said it is on the right path. “The company is delivering,” it said. “Nevertheless, we will study the Icahn/Lazard proposal carefully and thoroughly, as is consistent with our existing practice and with our fiduciary duties to shareholders. We will have more to say on the specifics of the proposal in due course.”

Mr. Parsons also issued a “Dear Fellow Shareholders” letter. “You may have recently heard something about Carl Icahn, who is leading a handful of hedge funds, and his proposal to break up Time Warner,” he wrote. The company will examine the proposal but remain focused on running the company and delivering the best possible results to shareholders, he said.

Mr. Biondi, who would assume Mr. Parson’s position if Mr. Icahn’s slate takes over the Time Warner board, said he was initially skeptical and slightly reluctant. “Then I got the Lazard report and read it,” he said. “I realized I fully concurred.”

'Bridge on the River Kwai'
Mr. Icahn, who spoke last, broke the crowd into laugher when he drew parallels between the current situation and the 1957 war-prison movie “The Bridge on the River Kwai.” In the film, a British colonel first opposes building the bridge for his Japanese captors, then becomes so attached to it that he opposes Allied efforts to destroy it. “The Bridge on the River Kwai is Dick Parson’s Columbus Circle,” Mr. Icahn said.

Time Warner has, for its part, put a fine foot forward with just about every step -- whether or not it feels the pressure to get lean and show resolve. The Time Inc. division fired nearly 200 staffers and top executives over December and January to cut costs and divert resources toward the Internet.

Last week, Time Warner reported fourth-quarter and full-year results that exceeded analysts’ expectations, an occasion that Mr. Parsons took to announce an accelerated share buyback. “If I can be allowed one moment of immodesty,” he added on the conference call, “no one can run these businesses better than the current management is running them.” And just yesterday, the company said it will finally sell its Time Warner Book Group, for $537.5 million.

Analysts were not immediately available after the Icahn presentation; some, in fact, decamped to have dinner with Mr. Icahn himself.

Replacement board
But the cacophony of other voices weighing in continued to rise. In just-released article called “Is Time Warner Really Necessary?” for the latest Vanity Fair, Michael Wolff writes that Mr. Icahn’s logic is “irrefutable.” Any man on the street would tell you, he writes, “Time Warner, along with all the other centralized, vertically integrated, horizontally organized, multi-platform-function media companies, is just too big.” (In a testament to the interest the battle over Time Warner has generated beyond the business world, Mr. Wolff and New Yorker writer Ken Auletta were among those in the crowd for the presentation.)

Mr. Icahn said he would introduce his full slate of candidates for the Time Warner board next week or the week after.

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