Lazard: Cut Time Warner in 4
NEW YORK — Frank Biondi, who’ll be running against Richard Parsons this spring for the top job at Time Warner, wants TW chief operating officer Jeff Bewkes to join him as CEO of a revamped conglom.He made the offer at a press conference Tuesday at the St. Regis Hotel, where investment bank Lazard unveiled a 350-page critique of Time Warner, recommending the media giant split into four pieces to jumpstart a stock that’s barely budged in four years. That period, the report noted, was concurrent with Parsons’ reign. Carl Icahn has tapped Biondi to be chairman-CEO of TW if the corporate raider succeeds in unseating Parsons and taking the board. “It would be my hope to segue to chairman and hand the reins to, hopefully, Jeff Bewkes, who’s a great guy,” Biondi said. Biondi said he hasn’t spoken with Bewkes. Icahn was noncommittal, and said it’s Biondi’s call. He said he didn’t really know Bewkes, although he’s heard good things. Icahn, who’s been campaigning since last summer to oust Parsons and break up the company, commissioned the Lazard study several months ago. The volume was packed with graphs, charts and explication of what it calls TW’s bloated overhead, missed opportunities and lack of strategic vision. It says the parts are worth more than the whole, and standalone units would be more focused, nimbler and lower-cost. The kicker: Lazard claims the split could drive Time Warner stock as high as $25.68, well above its current $18. “It is now time to begin to lift the fog, examine the record and undertake a careful evaluation of TWX,” the report began. Separately Tuesday, San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins said it will file lawsuits on behalf of 100 institutional investors who claim to have lost nearly $1.6 billion as a result of the TW-AOL merger. The investors have opted out of a pending class-action settlement in New York federal court. The firm said it is also pursuing actions on behalf of clients in state courts in California, Ohio and West Virginia alleging damages of more than $1.6 billion. TW has already paid billions of dollars to settle lawsuits and federal inquiries into the TW-AOL deal. In a statement regarding the Lazard report Tuesday, Time Warner said its board and management regularly review all strategic options. “We are on the right path. The company is delivering. Nevertheless, we will study the Icahn/Lazard proposal carefully and thoroughly, as is consistent with our existing practice and with our fiduciary duty to shareholders. We will have more to say on the specifics of the proposal in due course.” In a letter to shareholders, TW said it is “committed to moving your company forward with one clear priority: delivering value for you.” Earlier this week, TW announced the sale of Warner Books to Lagardere of France for $537 million. It will close the purchase of cabler Adelphia Communications later this year. Lazard’s fees for its efforts are based on the performance of TW stock over the next 18 months. Chairman-CEO Bruce Wasserstein insisted, “Our recommendations would have been the same had we been retained by the board of Tim Warner.” Wasserstein, Icahn and Biondi will be aggressively courting Wall Street in coming months in hopes of garnering enough support to push through their agenda at TW’s annual meeting this spring. So far, Icahn and his allies own just over 3% of TW shares. They will need many, many more votes to get their way. In response to a question, Wasserstein said he hadn’t seen a report in the Deal, a publication he owns, that John Malone had offered to sell Liberty Media’s 4% stake in TW to Icahn. “Do you know if it’s for sale?” Icahn asked. “I’m not aware of the story. It may be true, it may not,” Wasserstein said. Icahn said he may announce his alternate board slate next week. He has said he won’t run for a seat. Icahn urged an attentive, pinstriped crowd to ask, “Why, if you own this, shouldn’t you split this up? Or, if you inherited a bunch of great companies … would you say, ‘Let’s hire the Time Warner board; let’s hire Dick Parsons to run them?’ ” Lazard and Icahn are upbeat on the various divisions — content (including film and networks), publishing, cable and AOL. Warner Bros. topper Barry Meyer was singled out as a “world-class executive.” But the report excoriates a corporate bureaucracy with overhead it estimated at $450 million last year. Hazarding a film metaphor, Icahn equated Parsons with the Alec Guinness character in “The Bridge on the River Kwai.” “He was in love with the bridge. The bridge on the River Kwai is Dick Parsons’ Columbus Circle. He is in love with the conglomerate structure,” Icahn said. “I look for what I call obvious no-brainers … a disconnect between a stock’s value and a stock’s worth,” he added. Icahn’s group believes Time Warner, adrift and overly cautious after the AOL debacle, hoarded cash, sold valuable assets such as Comedy Central and bungled deals such as the acquisition of MGM. Instead of investing in the future, Lazard says, Time Warner was obsessed with slashing debt at the wrong time — a period of favorable interest rates and ample liquidity. On Warner Music Group, Biondi said, “I don’t think the flaw was to sell it. I would have sold it, too.” But he said TW should have cut costs first, like rival music companies did, and sold it for a higher price. Edgar Bronfman Jr. has since cut $250 million in costs. “It certainly wasn’t a secret what had been going on at Bertelsmann and Sony,” where there were hundreds of music layoffs in massive rounds of cost cutting, he said. Biondi said he figures the split into four companies would take between nine and 18 months — based in part on the timetable Viacom was able to muster for its split-up. The content division, with the studio and the TV networks, would remain the core of Time Warner. The three other divisions would be spun off to Time Warner shareholders. Any or all of the smaller companies could become acquisition targets. As expected, Lazard also called for Time Warner to use some of its cash to raise its current $12.5 billion stock buyback program to $20 billion. Parsons, who has many supporters on Wall Street, has argued in favor of keeping Time Warner together for the scale it affords in a fast-changing and competitive world. He believes there are benefits in having cable, content and the Net under one roof. “It sounds good. It’s the dream. But to execute it requires a particular kind of skill. The record is quite the opposite here,” Icahn said.
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