Icahn Camp Proposes Breaking Up Time Warner Into Four Companies

Feb 7, 2006  •  Post A Comment

Time Warner should break itself into four separately traded public companies and launch a $20 billion stock buyback to unlock shareholder value, investment firm Lazard said in a report released Tuesday.

The long-awaited report, which was put together at the urging of billionaire financier Carl Icahn, will serve as the basis of the proxy fight Mr. Icahn will continue to wage against Time Warner’s management over the future of the company.

In the 371-page document, Lazard outlines many of the problems the firm sees as plaguing Time Warner’s stock price, including missed opportunities to capitalize on America Online’s position as a leading Internet Web site as well as the network division’s failure to launch any new broad channels in the past three years and mistakes at Time Warner Cable, including the company’s decision not to follow through with its interest in the former AT&T Broadband cable operation.

“Time Warner has been run for the short term [and has made] numerous contradictions and missteps,” said Bruce Wasserstein, chairman and CEO of Lazard. “There has been no coherent strategy and there has been a lack of conviction in the Internet [which has] limited its potential for growth and therefore [hindered] an increase in shareholder value.”

Time Warner, for its part said in a statement: Our board and management regularly review all of the strategic options for managing this company to create the greatest value for our shareholders.”

The Lazard report suggests that Time Warner be broken into four units-AOL, Time Warner Cable, publishing and a single film and television network operation. In addition, Lazard is recommending that jobs and overhead be cut and operations be streamlined. Further, the report recommends Time Warner boost its stock buyback program to $20 billion from the company’s current level of $12.5 billion.

The report marks the latest chapter in a protracted battle between Mr. Icahn and Time Warner management over the future of Time Warner. Mr. Icahn has been pressing the Time Warner board for months to consider breaking up the company to unlock value-a recourse Time Warner Chairman Richard Parsons has rebuffed and dismissed as “the flavor of the month.”

The report also serves as a blueprint for former Viacom CEO Frank Biondi, who has joined forces with Mr. Icahn and has agreed to become chairman and CEO of Time Warner should Mr. Icahn prevail in getting his slate of nominees elected to the Time Warner board at the company’s annual meeting in May.

Mr. Biondi said that following through with Lazard’s recommendations would be his top priority should he become CEO, and he said he expected the process of breaking up the company to take somewhere between nine months and 18 months, finishing by the end of 2007.

Despite the criticism by the Icahn camp of Time Warner’s management, one Time Warner executive appears to figure prominently in the Mr. Biondi’s plans should he become chief executive. Mr. Biondi said Tuesday that he would like Time Warner President and Chief Operating Officer Jeff Bewkes to stay on and work with him in running the company.

“[Mr. Bewkes] is a terrific piece of manpower and a great guy,” Mr. Biondi said.