Icahn Retreats on Time Warner

In a victory for Time Warner Inc. Chief Executive Richard Parsons, dissident investor Carl Icahn is abandoning his fight for control of the world’s largest entertainment company.

Icahn has decided against his previous plan of nominating a full slate of directors to replace Time Warner’s 14-member board, people with knowledge of the situation said.

And the billionaire could give up the proxy fight altogether. Icahn was said to be in negotiations late Thursday with Time Warner executives.

It was unclear what concessions, if any, Time Warner had put on the table to get Icahn to back down. It is possible the company committed to more aggressively slash costs and to buy back additional shares.

Neither Time Warner nor Icahn’s representatives would comment. The people with knowledge of the talks did not want to be identified because negotiations could break down.

A settlement would be a vote of confidence in Parsons. Icahn has blamed the CEO for Time Warner’s poor stock performance and has urged him to split the company into four pieces. But many investors believe Parsons has done a good job cleaning up the mess caused by the $99-billion acquisition of Time Warner by America Online in 2000.

“The apparently rapid resolution demonstrates the depth of the disconnect between Mr. Icahn and other investors with regard to management performance and the potential for valuation upside in the event Time Warner were to be split apart,” wrote Merrill Lynch analyst Jessica Reif Cohen in a report Thursday.

Time Warner shares are down about 8% since Parsons took charge about four years ago. They have been more sluggish than those of its rivals amid the uncertainty that new technologies such as digital downloading present for entertainment companies.

Icahn, who turned 70 on Thursday, may be softening his stance because he lacks support, analysts said. Only about 3% of Time Warner shareholders have stepped forward to back Icahn.

What’s more, Time Warner shares have barely budged since Icahn launched his campaign in August, suggesting investors have been skeptical of his efforts.

A lengthy report unveiled last week, prepared by Icahn advisors Lazard Ltd., claimed that Time Warner’s share price would rise as much as 50% if the company was split into four parts.

Some on Wall Street, however, criticized the analysis for its omissions and for inflating certain numbers to help make a case for the breakup. “The valuation implied by Mr. Icahn’s group had, in our view, aggressive assumptions,” Cohen wrote.

In recent weeks, several large shareholders had told Icahn that they did not believe in his plan to break up the company. Others close to the investor warned him that he would lose any proxy fight, potentially damaging his reputation as an activist shareholder.

Icahn has built his $8-billion fortune by accumulating shares and instigating for change in underperforming companies such as airline TWA and food and tobacco giant RJR Nabisco. The Time Warner fight is among his highest-profile battles in recent years.

But Icahn has had difficulty putting together a credible slate of directors for Time Warner. After several former Time Warner executives turned down invitations to join his fight, Icahn agreed to pay former Viacom Inc. Chief Executive Frank Biondi a minimum of $6 million to publicly agree to become Parsons’ replacement if Icahn won. Biondi still will be paid that sum for his three weeks of work even if Icahn settles.

Icahn must file his nominations to the Time Warner board with the Securities & Exchange Commission by Sunday. Although he had assembled 14 candidates, one source said, doubts about their electability persuaded Icahn to narrow his slate to the better prospects.