Corporate raider Carl Icahn continued to keep up the pressure on Time Warner Inc., issuing a letter to shareholders Tuesday that criticized the media giant for its “disastrous” America Online Inc. merger in 2002 and what he characterized as bad deals to sell off its Warner Music Group and Comedy Central assets.
“In life and in business, there are two cardinal sins,” Icahn wrote. “The first is to act precipitously without thought, and the second is to not act at all.Unfortunately, the board of directors and top management of Time Warner already committed the first sin by merging with AOL, and we believe they are currently in the process of committing the second.”
Icahn wrote that as a result of the AOL merger, Time Warner was forced to take $87 billion in goodwill write-downs over two years as the value of the asset plummeted. During that same period, Time Warner’s stock price declined 75%, he added.
Time Warner shareholders appeared to be unmoved by Icahn’s latest salvo -- the stock was down 10 cents each to $17.91 per share in afternoon trading Tuesday.
Icahn also criticized Time Warner management for selling off assets at “fire-sale prices.” He pointed to the 2003 sale of Warner Music Group for $2.6 billion -- an asset that now has an enterprise value (market capitalization plus debt minus cash and cash equivalents) of about $4.7 billion.
Time Warner’s sale of its 50% interest in cable channel Comedy Central to Viacom Inc. (which owned the other half) in 2003 for $1.225 billion is about one-half of what that stake is valued at today ($2.225 billion), according to Icahn.
Icahn also criticized Time Warner chairman and CEO Richard Parsons for failing to buy movie studio Metro-Goldwyn-Mayer Inc. last year. While Time Warner said it passed on MGM because the price was too high (it was sold to a consortium of Sony Corp., Comcast Corp. and private equity groups for $4.9 billion), later public filings showed that Time Warner had lobbed in a higher offer 90 minutes before the MGM board was to vote on the Sony bid. Speculation at the time was that Time Warner had a change of heart after it learned that Comcast was in the hunt for the studio.
“As a result of the mismanagement of this process, MGM’s extensive content library is today controlled by a major studio competitor (Sony) and a major cable competitor (Comcast),” Icahn wrote.
In a statement, Time Warner said its management has demonstrated its commitment to driving shareholder value over the past three years, reducing its once-heavy debt load, selling underperforming businesses and stabilizing AOL.
Time Warner added in the statement that current initiatives like intensifying and accelerating the transition of AOL’s business model, refining its capital allocation to increase returns and moving to successfully integrate its Adelphia Communications Corp. acquisition will drive further value creation.
“The management team has proven its commitment to shareholders and its openness to constructive ideas from knowledgeable people,” Time Warner said in the statement. “We will proceed on our course, committed to increasing the value of this company and delivering a highly competitive return for all of its shareholders. We look forward to sharing our next steps with our shareholders in the coming weeks.”
Icahn began making waves at Time Warner in early August when he disclosed that Icahn Partners -- along with Franklin Mutual Advisors 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 Time Warner’s total shares outstanding.
Since then, he has been trying to accumulate as much as 10% of Time Warner stock by getting other investors to join his group. It is unclear whether Icahn has been successful in that endeavor.
Icahn also called for Time Warner to increase shareholder value by raising its stock-repurchase plan from its current $5 billion to $20 billion and by spinning off its cable operations.