Icahn leads bid to force changes at media firm

Time Warner investors seek $20 billion buyback, cable TV division spinoff

August 16, 2005|By Sallie Hofmeister | Sallie Hofmeister,LOS ANGELES TIMES

Accusing Time Warner Inc. of moving too slowly to improve its sluggish share price, billionaire investor Carl C. Icahn yesterday urged the world's largest entertainment company to separate its cable business from its entertainment properties and repurchase $20 billion worth of its stock.

But many investors questioned whether a sale or spinoff of the company's cable business would improve the entertainment giant's value. While they welcome a bigger stock buyback, analysts said, it's not the best time to sell or spin off cable systems that have been trading at historic lows because of concerns about the heated rivalry with phone and satellite competitors.

What's more, analysts remained skeptical that Icahn and his group have the wherewithal to force big changes. Despite some investor frustration with the stock's stagnation, Time Warner chief Richard Parsons has won praise on Wall Street for cleaning up the financial and regulatory issues that shook the company after its disastrous 2000 merger with America Online Inc.

Time Warner, which owns CNN, HBO, Warner Bros. and the country's second-largest cable TV provider, said the company had "a process in place" to improve shareholder value. "We would, of course, speak with any interested shareholder who has relevant thoughts or perspectives, and in that context we have informed Mr. Icahn that we would be happy to meet with him."

Sources close to Time Warner said Parsons and Icahn were scheduled to meet today.

Time Warner's size and diverse shareholder base could present obstacles for Icahn. With a market value of $87 billion, Time Warner has about 4.7 billion shares outstanding.

In a statement yesterday, Icahn said he and three other investors - Franklin Mutual Advisers Inc., Jana Partners LP and SAC Capital Advisors LLC - had accumulated more than 120 million shares of Time Warner, the equivalent of 2.6 percent of its stock. He said he would lobby other investors to join forces. Icahn said he might also consider nominating a board candidate at the company's next annual meeting.

Analysts said privately that while Parsons is unlikely to budge much on Time Warner's cable strategy, he might be willing to increase the stock buyback to keep Icahn at bay. Many investors were disappointed with a planned $5 billion buyback Time Warner announced this month.

Analysts have been urging Time Warner and most other top media companies for some time to use the strength of their balance sheets to buy back stock as a solution to the slowing growth of their maturing assets. So-called "equity shrinks" often have the effect of increasing the stock's price by reducing the supply of shares.

Analysts said they were still unclear about Icahn's motives. "There's more than one way to win," said one analyst, noting that Icahn and his partners had purchased options and were very sophisticated financial players who could "long this and short that."

Time Warner shares rose 26 cents yesterday to close at $18.50. They have jumped by about 4 percent since news of Icahn's plans first came to light this month, but they are still down 5 percent this year. Before then, the company's shares were trading slightly above those of the nation's leading cable provider, Comcast Corp.

Analysts said that, given the lower values of cable stocks, not much would be gained by Time Warner through a sale of its cable group. Bear Stearns & Co. concluded that a sale would add only $1.60 a share to the parent company's stock price because of a dearth of prospective buyers and cable's struggles on Wall Street. There also could be formidable tax implications.

The Los Angeles Times is a Tribune Publishing newspaper.

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