Icahn Gives a Lift to Time Warner

Shares of Time Warner Inc. hit a four-month high Tuesday, fueled by speculation that billionaire financier Carl Icahn was raising his stake in the world’s largest entertainment company in a bid to pressure management for radical changes.

Icahn, who has an eagle eye for undervalued companies, reportedly has been contacting the managers of large hedge funds about joining forces to gain Time Warner board seats. Analysts believe Icahn could seek to split the New York-based company, selling America Online and possibly the publishing and cable units.

Shares of Time Warner jumped 57 cents Tuesday to $18.54 after a report on business news channel CNBC sketched out Icahn’s possible plans. Similarly, Time Warner stock rose 54 cents Friday as rumors swirled on Wall Street about Icahn’s intentions.

Icahn did not return a call to his office Tuesday.

Time Warner spokesman Ed Adler declined to comment on a potential Icahn power play. He said that company executives were “doing everything we can” to improve Time Warner’s stock price, adding, “We’re committed to improving shareholder value.”

Since taking the helm at Time Warner three years ago, Chief Executive Richard Parsons has slashed debt, settled federal inquiries into the company’s accounting practices and set aside funds to resolve shareholder lawsuits.

Time Warner already plans to spin off its cable systems business as part of its proposed acquisition -- with Comcast Corp. -- of Adelphia Communications Corp. Parsons also has told investors he would consider spinning off AOL if a turnaround plan now underway doesn’t work.

For Icahn, Time Warner would be just his latest conquest.

This spring, Icahn won a proxy fight at Blockbuster Inc. that entitled him to three seats on the board. Icahn filled one of those seats with Ed Bleier, a retired Time Warner executive who one source said Tuesday is advising Icahn on the company.

In April, Icahn’s shareholder activism forced Kerr-McGee Corp. to spend $4 billion to repurchase a block of its own stock and sell a slow-growth chemical business.

And last month, he made millions on a stake in Mylan Laboratories Inc. that he agreed to sell back to the company after it dropped an acquisition that Icahn had challenged as too expensive.

“He’s been extremely active this year and has met with an incredible amount of success,” said Patrick McGurn, executive vice president of Institutional Shareholder Services, which advises large investors. “Anyone taking on Carl will probably think twice. People take him very seriously today.”

Still, Icahn does not have the financial firepower to launch a takeover bid for Time Warner like the one he waged for Mylan, analysts said. As of March, Icahn held 5.1 million shares of Time Warner, or 0.1% of the stock, according to Bloomberg data. It is unclear how many shares Icahn has purchased since then, although even the largest shareholders in Time Warner control no more than 6% of the stock.

Time Warner’s market value is nearly $90 billion.

“Even for a billionaire, this is a stretch,” said Harold Vogel of Vogel Capital Management, noting that Time Warner has about 4.6 billion shares outstanding.

But Icahn could still make waves.

“His recent M.O. has been to make a threat and that’s been enough,” McGurn said. In the case of Time Warner, Icahn “would be playing the role of choir master. There’s a large block of investors out there more than willing to join the chorus if someone else does the heavy lifting.”

Many investors have been frustrated that Wall Street hasn’t recognized the value of the company’s online division even as Internet advertising is booming and rivals such as Google and Yahoo are worth billions. While it is still hugely profitable, AOL has been losing its core dial-up subscribers as broadband access has gained in popularity.

“Time Warner isn’t getting credit for AOL,” said Richard Greenfield of Fulcrum Global Partners. To prove to Wall Street that the Internet division is worth something, he said, breaking up the company might be necessary.

Analysts said that even barring such a move, Icahn’s interest in Time Warner alone might get Wall Street to take a more realistic look at AOL’s value.

“He’ll make some noise, drive up the stock, and make a couple million in profits,” Vogel said.