In his campaign to drive up Time Warner's stock price, activist shareholder Carl Icahn said Monday the company should completely unload its cable operation and spend $20 billion to buy back its own stock.
Icahn is leading an investor group that is pressuring the company to follow his strategy. He released a statement on Monday after stories in the media last week ruminated on his motives.The group—Icahn Partners and Icahn Partners Master Fund, Franklin Mutual Advisors, JANA Partners and S.A.C. Capital Advisors—doesn’t actually own much of Time Warner’s stock. On Monday the group disclosed it controls shares worth $2.2 billion, just 2.6% of Time Warner’s outstanding stock. In addition, Icahn’s group doesn’t actually own all of those shares. It only has options to buy an undisclosed number of those shares, so has far less money actually at risk. But even if the group's position isn’t very big, Icahn's reputation as an activist shareholder carried enough weight to secure an audience with Time Warner CEO Richard Parsons. Icahn contacted Parsons last Friday and Parsons asked to meet with him this week. In his statement, Icahn praised Time Warner’s management, but says “it has not moved quickly enough” and “it has not proposed measures which would enhance values to the degree necessary to realize the inherent value of [Time Warner's] well positioned and unique assets.”Icahn calls for a “separation of the cable business from the content businesses combined with the immediate repurchase of at least $20 billion of common shares would eliminate the discount between [Time Warner's] share price and the inherent value of its unique assets.”That would be a massive buyback, bringing in 20%-25% of Time Warner’s 4.6 billion outstanding shares, currently worth around $86 billion. It would also limit the company’s financial flexibility. Time Warner executives have explored myriad strategies to sell or spin-off assets and repurchase stock. So far, Parsons has set a plan to buy back $5 billion worth of Time Warner shares over time.