Icahn Raids the Wrong Arc, Time Warner

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The New York Sun

It’s another one of those grandiose power plays by the wily corporate raider Carl Icahn. In this case, though, investors are reacting to implied threats against his latest prey – Time Warner – with considerable skepticism.


“I think investors recognize Mr. Icahn’s latest ploy for what is – a sucker’s play,” a Los Angeles day trader, Arnold Silver, said. “I don’t know if it’s an ego trip, but it looks like he’s bitten off more than he can chew this time, and I wouldn’t be surprised if he ends up losing money.”


This reference is to Mr. Icahn’s mid-August disclosure that he and some hedge fund partners had acquired more than 120 million Time Warner shares, or 2.6% of the company’s stock.


Mr. Icahn, anxious to pump up the price of the shares, is urging the company to buy back $20 billion worth of stock and spin off its cable business. Time Warner is already moving in these directions, having announced plans to purchase $5 billion worth of its stock and a partial spin-off of the cable unit, but that’s apparently not enough for Mr. Icahn.


Intensifying the apparent pressure on Time Warner, unsubstantiated stories appeared shortly after Mr. Icahn’s announcement of his stake that he and his partners were prepared to bid for up to 10% of the company, with Mr. Icahn ready to ante up $1.5 billion of the needed $6 billion. Mr. Icahn never did comment on those stories.


Seemingly in-the-know but unconfirmed press reports invariably follow Mr. Icahn’s entry into a company’s stock – that is, when he’s an activist. They generally suggest he’ll take more aggressive action if management refuses to bend to his will. Mr. Icahn is seldom available for comment on stories that discuss such threats, which more often than not never materialize. Oddly enough, a number of reporters who are unable to reach Mr. Icahn for comment on speculation that he’s prepared to take more aggressive investment action often have no trouble contacting him when he first announces his stake in a company. It leads some traders to conclude the press is being used to try to frighten Mr. Icahn’s adversaries.


Meanwhile, Time Warner’s stock – which closed yesterday at $18.16 – is trading around where it was when the news first came out of Mr. Icahn’s involvement in the company. This clearly suggests investors believe Mr. Icahn’s attack on Time Warner is a nonevent.


Why so? Because of the general doubt, it’s suggested, that Mr. Icahn and his fellow raiders will influence the actions and future of the company. While some Wall Streeters are dubious Mr. Icahn’s group will ever bid for a 10% stake in Time Warner and, in fact, question the accuracy of such press reports, they think such a stock position, even if achieved, would be insufficient to allow it to dictate a course of action.


A bid for the entire company by Mr. Icahn’s group is generally viewed as farfetched since that would cost, based on Time Warner’s present market capitalization, about $84 billion. And that doesn’t factor in the usual takeover premium (which could easily add up to a $100 billion-plus bid) or the obvious legal and regulatory hurdles.


Mr. Silver sees Time Warner as a company still facing significant problems and uncertainties four years after the $182 billion merger of Time Warner and AOL in 2001, citing in particular the AOL operation (which lost an additional 917,000 subscribers in the second quarter). And he thinks the stock is currently priced about where it belongs.


He’s hardly alone in his dim view. For example, money manager Joan Lappin of Gramercy Capital Management thinks that “creatively, Time Warner is brain-dead.” The same group has been running the company for three years and it’s stuck in the mud, she said, adding, “there is just no reason to own this stock.” Pointing to speculation that Time Warner CEO Dick Parsons may run for governor, Ms. Lappin thinks that “could provide a neat, tidy exit for him.”


As for Mr. Icahn’s entry into the scene, she thinks it’s meaningless. “A year ago, he showed up at Kodak, made all sorts of noise, and nothing ever happened,” she said. “As far as Time Warner goes, I think he’s more hot air than anything else.”


Interestingly, the latest short position in Time Warner, despite Mr. Icahn’s saber-rattling, stands at a whopping 64.9 million shares, indicating the shorts also view the raider in this instance as more of a powder puff than a powerhouse.


The Icahn group includes SAC Capital Advisors, which is run by Steve Cohen, widely regarded as Wall Street’s most successful trader; Jana Partners, and Franklin Mutual Advisors. Interestingly, one person at SAC Capital described the Icahn group’s effort to one of his Wall Street contacts as “an exercise in futility,” on the theory that nothing will come of it. So why did SAC do it? Some theorize it may reflect a desire to get closer to Mr. Icahn and become an active participant in his future deals.


Mr. Icahn, who has met with Mr. Parsons, did not return calls seeking comment.


The New York Sun

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