Carl Icahn Monday sent an open letter to the board of directors of Time Warner Inc. explaining his opposition to the pending deal between Time Warner’s America Online Inc. unit and Google Inc.
Icahn began making waves at Time Warner in early August, when he disclosed that Icahn Partners, along with three other funds -- Franklin Mutual Advisers Inc., JANA Partners LLC and SAC Capital Advisors LLC -- had accumulated Time Warner stock and options worth about $2.2 billion on the open market, or about 2.6% of the company’s total shares outstanding.
In late November, he hired Lazard Ltd. to conduct an in-depth analysis of Time Warner’s business and identify potential strategic alternatives for the media giant, including “a streamlining of its corporate structure, reconfiguration of its assets, potential sale of selected businesses, adoption of a more appropriate capital structure and commencement of a significant share repurchase.”
The text of Icahn’s letter follows:
Like all shareholders, I am not opposed to Time Warner entering into an AOL transaction that creates long-term value. However, I am deeply concerned that the Time Warner board may be on the verge of making a disastrous decision concerning an agreement with Google if this agreement would make it more difficult in any way or effectively preclude a merger or other type of transaction with companies such as IAC/InterActiveCorp, eBay [Inc.], Yahoo! [Inc.] or Microsoft [Corp.], etc.
I believe there are and will be major opportunities to enhance Time Warner's value in future combinations. However, these transactions might not be achievable if Time Warner enters into long-term arrangements that preclude future flexibility, such as an agreement regarding search functionality.
I also question whether Google is the best partner for unlocking the value of the AOL asset. Indeed, a recent [The] Goldman Sachs [Group Inc.] report concludes, "In contrast to the conventional perspective, we believe that eBay, followed by InterActiveCorp, would provide greater incremental benefits to AOL's option value with fewer conflicts of interest than Yahoo!, while MSN and Google would provide the least incremental benefits."
On the eve of a proxy contest, I believe it would be a blatant breach of fiduciary duty to enter into an agreement with Google that would either foreclose the possibility of entering into a transaction that would be more beneficial for Time Warner shareholders or make such a transaction more difficult to achieve.
If, as is my belief, other suitors interested in transactions predicated on receipt of control of AOL have been foreclosed from entering into negotiations, the board's actions would be even more questionable. The real risk for Time Warner shareholders is that a Google joint venture may be short-sighted in nature and may preclude any consideration of a broader set of alternatives that would better maximize value and ensure a bright future for AOL.
Once again, I am not opposed to the board using its business judgment to enter into a transaction with Google or another suitor so long as the transaction does not destroy or impede Time Warner's flexibility to unlock shareholder value in the near and long term. However, I want this letter to serve as notice to Time Warner's directors that if they enter into a transaction that has that effect, shareholders will seek to hold directors responsible.