Back to the future?
This long hiatus just ended. About noon yesterday, I received an e-mail from a producer at CNBC asking if I could appear on "'The Closing Bell" with Maria Bartiromo at 4:30pm to comment on whether Carl Icahn's battle with Time Warner would scare away possible AOL suitors. I was guessing that this producer had read my comments on this topic in the previous day’s Red Herring.
According to people who contacted me after the appearance, it went well. My take was that Time Warner’s stock is down 76% since January 2000 and at a current $18 it is trading a conglomerate discount – so it should be broken up – selling AOL to Microsoft, Google, or Yahoo and the cable business to private equity firms. I opined that since Icahn has threatened to sue Time Warner’s board of directors if it does not sell AOL for a sufficiently high price, his involvement imposes what I called the Icahn Put on Time Warner’s AOL unit. This means that there is an implicit floor on the price at which AOL is likely to be sold. If potential bidders think that floor price is too high, they may withdraw from the bidding. Bartiromo asked me what AOL was worth and I dodged the question – noting that it was worth whatever price Time Warner and the bidders agreed on. I did point out; however, that Icahn thinks all of Time Warner is worth $27 – a 50% premium over yesterday’s price.
I find Icahn’s efforts interesting for many reasons. First, it reminds me of the 1980s which featured junk-bond fueled takeovers in which Wall Street gunslingers, such as Icahn, put fear into the hearts of corporate executives. Instead of junk bonds, we now have private equity coupled with hedge funds acting as catalysts. Second, I am intrigued by the Icahn’s longevity –reportedly he has done 56 deals between 1996 and 2004, generating 53% average annual rates of return yielding $2.8B worth of gains. Forbes recently estimated his net worth at $8.5B. Third, I believe that there are many companies trading at a conglomerate discount which could be ripe for breakup – particularly if Icahn succeeds in his current efforts with Time Warner.