Icahn, Time Warner End Fight

By Steven Levingston
Washington Post Staff Writer
Saturday, February 18, 2006

Investor Carl C. Icahn and Time Warner Inc. announced an agreement yesterday under which Icahn will drop his bid to seek control of the company and Time Warner will do some of the things the dissident shareholder has recommended.

The agreement calls for Icahn not to contest the company's slate of directors at its shareholders meeting in May. In return, Time Warner will increase its share repurchase program from $12.5 billion to $20 billion, matching a figure proposed in a report Icahn released last week calling for a major restructuring of the media giant.

"We are very pleased to have reached an understanding with Mr. Icahn," Time Warner's chairman and chief executive, Richard D. Parsons, said in a written statement. "We appreciate his role as a significant shareholder as well as his constructive recommendations."

Icahn had said he planned to run a full slate of board candidates at the shareholders meeting in a proxy battle for control of the company. Under the agreement, Time Warner said it would recommend the election or appointment of two new independent directors and would ask Icahn for recommendations.

The company also pledged to intensify its cost-cutting, another issue that Icahn used to push for change at the company. Time Warner noted in its statement that it had already begun a review of costs across the company, with at least $500 million in reductions written into its operating plan for 2006. The company said it would seek to cut another $500 million in 2007.

Icahn said in a written statement that Time Warner's actions will help achieve his "long-stated goal of creating value for all shareholders" and that he has "proved again that shareholder activism can be extremely effective."

As head of an investors' group that owns more than 3 percent of Time Warner, Icahn has sought to reorganize the company under new management. Last week, he announced a plan, prepared by Lazard Ltd., to split Time Warner into four publicly traded companies and to replace Parsons. Icahn argued that current management has cost shareholders $40 billion in value.

The agreement yesterday gives Icahn a face-saving departure from his high-profile battle with the company. The Lazard plan didn't get much support from shareholders, and Icahn failed to attract many prominent candidates for board seats. Before the plan was released, Icahn recruited former Viacom Inc. chief executive Frank J. Biondi Jr. as a possible replacement for Parsons had his takeover effort succeeded.

The swift collapse of Icahn's campaign suggests Icahn misread shareholder sentiment, said Jessica Reif Cohen, an analyst at Merrill Lynch & Co. "We did not anticipate significant support for a change in administration," Reif Cohen wrote in a report. "The apparently rapid resolution demonstrates the depth of the disconnect between Mr. Icahn and other investors with regard to management performance" and any expected improvement in value from a split-up.

Icahn's retreat is a victory for Parsons, who has maintained that Time Warner is on the right path. After the Lazard report was released, Parsons sent a letter to shareholders asserting that the company was delivering value to investors.

Time Warner said yesterday that a different capital and corporate structure may be appropriate for Time Warner Cable. It also said it would continue to review the Lazard report and consult with Icahn on its proposals.

Though his initiative came up short, Icahn has no intention of keeping his advice to himself. "I remain committed to the tenets of the Lazard report and hope to be able to convince Dick [Parsons], in our future meetings, to accept a number of its recommendations," Icahn said in his statement.

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