Icahn, Lazard: Split TW in Four


New York -- An investor group headed by Carl Icahn unveiled its long-awaited report on its plan for the restructuring of Time Warner Inc., mapping out a strategy in a 342-page tome that would split the media giant into four separate publicly traded companies: America Online Inc., Time Warner Cable, the Warner Bros. movie studio and cable networks and its publishing businesses.

According to the report, written by Icahn advisor Lazard Ltd., Time Warner has lost about $40 billion in shareholder value since 2002, and its shares have underperformed the major stock indexes by about 40%.

In a presentation to a packed house at the St. Regis Hotel here Tuesday, Lazard chairman Bruce Wasserstein said Time Warner senior management has run the company for the short term, missing out on key acquisitions like Metro-Goldwyn-Mayer Inc. (which was bought by a consortium of private-equity groups, Sony Corp. and Comcast Corp.) and AT&T Broadband (purchased by Comcast), while mismanaging one of its biggest assets, AOL.

The report said splitting up the businesses could add $6-$9.25 per share in value to Time Warner shareholders.

The report seemed to levy the greatest criticism at Time Warner’s handling of AOL. In the report, management was scolded for failing to nurture or invest in AOL, continuing a “walled garden” strategy for the asset beyond its useful life, failing to offer a bundled package of AOL and Time Warner Cable’s Road Runner high-speed-Internet service and throwing up roadblocks to AOL’s entry into the telephone business because it infringed on Time Warner Cable’s telephone offering.

In addition, the report said Time Warner failed to harness the potential of networks and publishing, pointing out that its Turner Broadcasting System Inc. networks haven’t launched a successful new cable channel since being acquired by Time Warner in 1994.

Wasserstein also criticized Time Warner’s fourth-quarter earnings -- revenue was up 4% for the year -- calling them “anemic.”

He added that recent developments -- such as plans to increase its share-repurchase program to $12.5 billion from $5 billion and its announcement earlier this week that it would sell its book-publishing business for $537.5 million -- were insufficient and would not have occurred without shareholder pressure.

“Time Warner shareholders should expect and, in fact, deserve more,” Wasserstein said. “Time has not been friendly to Time Warner over the past three years. The need to implement change is urgent.”

Frank Biondi, who would become chairman and CEO of Time Warner if Icahn’s efforts are successful, reiterated Wasserstein’s criticism of the company, adding that the separation could take between nine and 18 months to complete.

Biondi said that if the separation were to happen, he would become chairman and CEO of “new Time Warner,” which would consist of the cable networks and Warner Bros. movie studio, passing the CEO reins to another executive -- hopefully current Time Warner chief operating officer Jeff Bewkes -- shortly after the spin was completed.

Biondi said later that he had not spoken with Bewkes, but he has had contact with other Time Warner executives whom, he added, were eager to see their stock price rise.

Icahn likened his focus on Time Warner to his earlier efforts to break up R.J. Reynolds Tobacco Co., which split into separate tobacco and food-products companies.

“The great potential in companies like Reynolds or Time Warner is that you can really buy the stock at a value that is far below its true asset value,” Icahn said. “Generally, it’s in the structure of the company and in the management. The differential lies in those areas.”

Icahn also spent a considerable amount of time criticizing Time Warner chairman and CEO Richard Parsons, quoting Parsons' remarks in published reports where the chairman and CEO admitted not knowing where the future lies.

“I do agree with Dick that he does not know where the future lies,” Icahn said. “I don’t agree with the philosophy that a great company is reactive, it waits to see what is going to happen. A great company in the media business today needs vision and visionary leaders. It does not need a conglomerate structure, centered at Columbus Circle, that second-guesses.”

Icahn said he could announce his slate of replacement board members within the next two weeks. Biondi said the group has a slate of directors assembled, but he would wait until the announcement to reveal their names.

In a prepared statement, Time Warner said it is on the right path, but it would review the Lazard report.

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

Time Warner also created a new section on its corporate Web site, “Building Value” (www.timewarner.com/buildingvalue), which will update shareholders on the progress made by its board of directors and senior management in increasing shareholder value.

Time Warner stock closed at $18.36 per share, down 21 cents each.