Analysts Downplay Icahn’s Time Warner Gambit

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Carl Icahn, the legendary corporate raider who has struck fear in the hearts of boardrooms worldwide, is circling Time Warner Inc., accumulating shares in the hopes that he can force the media giant to divest assets or increase its share buyback program.

But some analysts believe that unlike the corporate raider’s past targets, Time Warner can largely ignore Icahn’s overtures.

In a research report last week, Banc of America Securities analyst Doug Shapiro wrote that Icahn’s moves will be little more than a distraction to Time Warner, mainly because of the size of the company’s float. With 4.6 billion shares outstanding, Icahn would have to spend about $4.3 billion — he already owns shares worth about $100 million — just to amass a 5% ownership stake in the media giant.

WEATHERED STORMS

Shapiro noted that in the last four years, Time Warner management, led by chairman and CEO Dick Parsons, has weathered a difficult merger with America Online Inc., a management reshuffle, investigations and settlements with the Securities and Exchange Commission and the Justice Department and a recent $3 billion settlement of shareholder litigation.

“So, although [Icahn’s] actions generally tend to get managements’ attention, in this case we believe Time Warner management may not scare as easily,” Shapiro wrote.

According to published reports, Icahn has been quietly accumulating the Time Warner stake for months and is urging other Time Warner shareholders to join him. He is expected to announce as early as this week that his group has control of about $2 billion worth of Time Warner stock.

According to reports, Icahn is maneuvering to gain a board seat and could try to force Time Warner to divest assets — either its cable operations or its publishing unit — or to cajole the media giant into increasing its $5 billion stock repurchase program.

Although Icahn’s motivation is reportedly to unlock the value of Time Warner through a split, a greater catalyst could be to force the company to buy his shares at a premium to make him go way. Such “greenmail” tactics have been a common weapon in the raider’s arsenal.

NO DOMINANT SHAREHOLDERS

But Time Warner is a very different animal. Aside from its massive float, there are no dominant shareholders in the company — its largest institutional shareholder Capital Research & Management owns 283 million shares, or 6%. What’s more, most of those institutions are pleased with the way Time Warner’s current management has been running the company.

In his report, Shapiro said that even if Icahn were to amass a stake much larger than 5%, it will likely have little influence on Time Warner.

“Recall that Seagram [Ltd.] acquired a position close to 20% in the mid 1990s and couldn’t even win a single board seat,” Shapiro wrote.

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