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Archives|Time Warner and Icahn Reach a Settlement


Archives | 2006

Time Warner and Icahn Reach a Settlement


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The sudden end of the assault by Carl C. Icahn on Time Warner yesterday came after a last-ditch effort by Mr. Icahn late Thursday night to gain representation on Time Warner's board.

In an 11:30 p.m. phone call to Richard D. Parsons, the chairman of Time Warner -- with whom he had met secretly in deal talks earlier that day -- Mr. Icahn said one of his investment partners was now insisting their group be allowed to appoint two directors.

Mr. Parsons, who certainly wanted to end Mr. Icahn's planned proxy fight for control of the company, put his foot down: Mr. Icahn could not appoint board members, because his group only owned a 3.3 percent stake in Time Warner.

Mr. Icahn, a billionaire financier who had turned 70 that day, responded that the deal was off. But nearly 12 hours later, Mr. Icahn called back and a deal was struck: two independent directors would be added to Time Warner's roster, but the company would pick them after consulting him. This one flew.


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Time Warner also agreed to increase its planned buyback of shares to $20 billion, from $12.5 billion, and to commit to reduce costs by $1 billion.

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"We are very pleased to have reached an understanding with Mr. Icahn," Mr. Parsons said in a statement yesterday. "We appreciate his role as a significant shareholder as well as his constructive suggestions."

The settlement was a remarkable turnabout given that only 10 days earlier Mr. Icahn had, with great fanfare, unveiled his strategy to break up Time Warner into four pieces. It was a plan crafted by the investment banker Bruce Wasserstein. The chief executive Mr. Icahn had proposed to replace Mr. Parsons was the former media executive Frank J. Biondi Jr.

But Mr. Icahn said in an interview that his sudden retreat came after he recognized that he had miscalculated in his campaign against Time Warner in two respects. For one, he said, it became clear that Time Warner's diverse shareholder base would not support his plan to replace the entire board in a proxy fight with 14 new directors.

Had the companies not agreed to a deal yesterday, Mr. Icahn was planning to scale back and propose a slate of five directors, and he believed they had a good chance of getting elected at Time Warner's annual meeting in May.

"Maybe I was a little off on knowing that the big investors did not want to see a complete change on the board," Mr. Icahn said. "But I think you'd be hard pressed to find a shareholder that does not think I created value here."

Secondly, he said, he came to agree with Mr. Parsons after the two met last Monday that separating cable from the rest of Time Warner was not feasible because doing so would incur a big tax bill. Mr. Icahn had said for months that Time Warner's cable television division should be completely separated from the company.

Still, Mr. Icahn said he regarded his rancorous involvement with Time Warner as a success, because the company was now taking steps to improve its languid stock price.


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"There's always a time when you can make a deal and it's always better to make a deal if you can," said Mr. Icahn, who is a veteran of corporate takeover battles and now considers himself a shareholder activist. "I don't think shareholders were ready to give me the keys," he said.

Some observers on Wall Street have questioned whether Mr. Wasserstein was wise to get involved and whether he may have advised Mr. Icahn poorly on his strategy.

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Mr. Icahn said people should not blame Mr. Wasserstein. "I'm a big boy. I'm a pro. Don't put this on Bruce," he said.

Mr. Wasserstein, through his spokesman, declined to comment.

Mr. Icahn demonstrated his mastery of verbal napalm in his campaign against Time Warner. His appraisal of the stewardship of Mr. Parsons at Time Warner was brutal; at one point he suggested that anyone buying the company would "kick him out."

The personal attacks were particularly jarring because Mr. Parsons, 57, is well liked and is considered one of the least egotistical leaders of a major media company. The rivals shared some roots -- both hailing from modest upbringings in Queens, to attain pre-eminent spots in their respective fields. Mr. Icahn is routinely described as the richest man in New York City, while Mr. Parsons is among the most accomplished African-Americans in business. Both affect an unpretentious, playful demeanor. And both agreed the stock price of Time Warner has been a letdown.

The company's shares dropped after its merger with America Online six years ago and have been stagnant since Mr. Parsons became chief executive two years later.

Mr. Icahn had also previously likened Mr. Parsons to a character in the 1957 film "The Bridge on the River Kwai" who was obsessed with protecting the bridge at all costs. He compared Mr. Parsons's affinity for Time Warner's gleaming headquarters at Columbus Circle to the bridge. Yesterday, M. Icahn said Time Warner was still Mr. Parson's bridge, but acknowledged, "He's taking it down a bit."

Privately, Mr. Parsons had told associates that he did not take Mr. Icahn's barbs personally, because that is his style and business approach. Yesterday, Mr. Icahn conceded that "maybe I get going a little too much," and said he felt Mr. Parsons was serious about considering more of the changes he and Mr. Wasserstein of Lazard had proposed.

"I got to like the guy after meeting him a few times," Mr. Icahn said. "He legitimately and honestly is trying to enhance value."


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Mr. Parsons, who declined to be interviewed yesterday, is also known as a skilled corporate politician. Even after Mr. Wasserstein and Mr. Icahn accused him of a list of strategic errors, he stayed in touch in recent weeks. When the Lazard plan received a cool reception from investors, Mr. Icahn invited Mr. Parsons to his office last Monday. There, Mr. Icahn presented Mr. Parsons with a list of proposals that would get him off Time Warner's back.

Mr. Parsons knew Mr. Icahn's plan was not gaining traction because many of the company's large investors felt the company was on the right track, but suffering from a general malaise in media stocks. Nonetheless, he was concerned that a proxy fight could be a further distraction for a company that had endured plenty of corporate tumult.

Mr. Icahn, meanwhile, told Mr. Parsons he had revised his strategy and was planning to announce his slate of five directors by the end of this week. A history buff who cites the Sun Tzu-inspired maxim "the best way to win a war is to not fight it," Mr. Icahn figured this was his best chance of coming to an agreement.

The two men spoke several times throughout the week. Then on Thursday, Mr. Parsons attended a board meeting of Estée Lauder, where he is a director, in the General Motors Building. Mr. Icahn's offices, as it happens, are just eight floors down in the same building, and Mr. Parsons rode the elevator down to visit him afterward.

After meeting with Mr. Parsons and hashing out most of an agreement, Mr. Icahn went home after 8 p.m. and had a martini with his wife in honor of his birthday. He then telephoned his partners in the Time Warner investment -- Franklin Mutual Advisers, JANA Partners, SAC Capital Advisors, and a Dubai investment firm, Istithmar PJSC. At 11.30 p.m., he phoned Mr. Parsons at his home in TriBeCa and made his final gambit for board seats. He then continued talking to his partners until after 2 in the morning.

Somewhere between then and when he called Mr. Parsons later that morning, he decided to take the deal.

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A version of this article appears in print on February 18, 2006, on Page C00001 of the National edition with the headline: Time Warner and Icahn Reach a Settlement. Order Reprints| Today's Paper|Subscribe

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