Carl Icahn On Time Warner via CSInvesting
Overview Of Time Warner Inc.
Time Warner is the world’s largest diversified media company with a current market capitalization of approximately $81 billion. Consensus Wall Street research estimates (pro forma for the currently pending Adelphia/Comcast transactions(a)) project fiscal 2005 revenues and OIBDA of $46 billion and $11.4 billion, respectively. The Company is currently composed of five main operating units:
- AOL: AOL provides Time Warner with a new media and Internet platform that serves approximately
20 million US subscribers. AOL owns leading web sites such as Moviefone and MapQuest and
attracts 114 million unique visitors per month.(b)
- Networks: Networks include established, highly regarded and profitable channels, including HBO, Cinemax, CNN, TBS, TNT, Cartoon Network and Court TV.
- Filmed Entertainment: The film segment includes two of the world’s leading and most profitable film studios (Warner Bros. and New Line Cinema) that have produced 16 of the top 50 grossing films in the last five years and have a library of over 6,600 theatrical releases and 54,000 television titles.
- Publishing: Publishing assets include 7 of the top 30 consumer magazines in the US (based on 2004 gross revenue), including People, Sports Illustrated, Time, Fortune, In Style, Entertainment Weekly and Southern Living, as well as IPC, the leading consumer magazine company in the UK, and wellrespected book publishing units including Warner Books and Little Brown & Co.
- Time Warner Cable (“TWC”): TWC manages over 14 million subscribers in tightly clustered and attractive markets (85% of TWC’s subscribers are in its top five markets, including attractive, large market shares in New York, California, Ohio, Texas and the Carolinas).(a) The entire TWC network (excluding Adelphia) has been 100% upgraded to offer digital video, high speed Internet and IP telephony.
Time Warner is at the center of the storm that has and will continue to jolt American industry. Technology, regulation and competition are changing at an accelerated pace. The markets are increasingly rewarding companies – across all industries – with a well-defined vision, as shareholder expectations on transparency, capital returns, appreciation and corporate governance increase. Against this backdrop, anticipating and harnessing change is critical for success.
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This is the Time Warner story. It is a difficult story to tell because the history and performance of the Company has been skillfully enshrouded in the fog of one of the largest public relations efforts in American industry. The spin is generated by scores of divisional people, over 30 corporate image executives and a series of outside public relations firms. Success is heralded as triumph; failures are trumpeted as success. A corporate mythology is spun and is largely accepted, unchallenged by the media. Some facts are simply obscured.
The story is not about evil or hubris. But even benign intentions may not suffice in leading a company in this challenging environment.
It is now time to begin to lift the fog, examine the record and undertake a careful evaluation of TWX.
II . The Issue: Performance
TWX’s stock has underperformed by all relevant measures since Mr. Parsons became CEO.(a) When benchmarked against an overall index representing AOL, Networks, Filmed Entertainment, Publishing and Cable, TWX’s stock has underperformed by 51%.(b)(c)
TWX has also underperformed all major indices – S&P 500, NASDAQ and DJIA. On an absolute basis, TWX’s stock has declined 8%.(b)
Even as compared to an index of traditional diversified media stocks, which does not include an Internet component, TWX has underperformed. But, TWX does indeed have an Internet business, as Mr. Parsons acknowledged when he commented, “we have a different profile than any of the big diversified media companies because we do have some of the Internet superspice in our portfolio – namely AOL.”(d)
Over various periods of time in the last five years, Time Warner’s stock has underperformed large media, entertainment and online companies individually. Shaded boxes in Exhibit 1.3 indicate overperformance as compared to TWX.
There is an obvious dichotomy between Time Warner’s PR campaigns and its acceptance by the media and the views of investors. Over the past several years, TWX has experienced a dramatic turnover in institutional ownership. Without a credible strategy of underlying growth at Time Warner in which to believe, growth investors have abandoned the stock. Growth investors represented an approximate 31% ownership position at the end of 2001 versus approximately 15% in 2005, as shown in Exhibit 1.4.
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