Billionaire investor Carl Icahn continues to sharpen his blade as he increases his stake at multimedia corporation Time Warner. In a fiery letter issued to the board of directors at Time Warner, Icahn blasts the board for “colossal” mistakes that started with the AOL merger, calling the merger a cardinal sin.
He ripped the board up one side and down the other, charging the board gave $87 billion in goodwill write-downs over a two-year period that was more than the current equity market capitalization of the company. He said Time Warner lost 75% of their market value in the last two years.
He noted that 12 of the current 15 directors approved of the decision and current Time Warner CEO Richard Parsons was one of the key negotiators. He also charged they chased off directors with opposing view points including Ted Turner, founder of numerous television stations including CNN and Warren Lieberfarb, who played a key role inventing the DVD market.
He said they made matters worse because while AOL was losing massive quantities of subscribers, Time Warner Cable promoted their own broadband and no synergistic relationship was set up between the two. This helped shrink the value of AOL.
While AOL was losing dial-up subscribers (approximately 9 million since 2001), Time Warner Cable promoted its own broadband service, Road Runner, yet never effectively promoted AOL on or integrated AOL with this platform. Additionally, during this time the Company allowed AOL to be marginalized on the internet while portals such as Yahoo! and search pioneers like Google captured larger online market share and currently have equity market values of greater than $45 and $85 billion, respectively. We believe that had the Board forced management to move more quickly, they could have not only demonstrated a commitment to the driving principle behind the merger (synergies between AOL and the Time Warner businesses), but perhaps could have preserved at least some of the shareholder value destroyed by the merger.
Icahn also attacked on the sale of Warner Music because that business has turned profitable since leaving the fold, calling this the “ultimate embarrassment.” He questioned why a group of financial investors were able to get more value out of a music company than the world largest media company and said the group saved $250 million in the first year.
He continued on to the sale of the 50% interest in Comedy Central to Viacom in 2003 for $1.225 billion. The letter quotes Morgan Stanley estimate of the value of Comedy Central to be $4.5 billion, meaning the stake in comedy central was worth a lot more than they sold it for.
He mentioned the failed attempt to purchase MGM. Icahn said in the letter that Sony could’ve been beaten in the deal easily because Time Warner was the favored bidder of Kirk Kerkorian (another fiery corporate raider). As a result of losing the bid, Sony and Comcast control the MGM content libraries.
He ended by attacking the “bloated cost structure,” discussing the $800 million building in New York, overlooking Central Park. He asked how such moves would “enhance shareholder value.”
The letter contained a number of attacks and Icahn said a consultant would be hired to see where the company could cut fat away. He issued a plan previously covering a number of points he believes will save money, including a $20 billion stock buyback to increase share value.
In the end, he called for new board membership. While Icahn does have some valid points, this isn’t the first time Icahn has done this either though. He attacked Blockbuster earlier in the summer with the same type tactics.
The big question will be the future of AOL. While AOL doesn’t appear to be in any danger at the moment, negotiations continue with Microsoft and who’s to say AOL won’t be spun back out at some point in the future.
John Stith is a staff writer for Murdok covering technology and business.
