Can Icahn Do It One More Time?
The famed corporate raider is pressing Time Warner for change
Parsons's balancing act is calculated to show investors that he is both unafraid and reasonable, a move that might help defang the beast at his door. Parsons also has some ammunition to beat Icahn back: He has been leading the company down the very path Icahn proposes, albeit at a much slower pace. And Icahn, although playing shareholder advocate, doesn't yet have nearly the number of shareholders necessary to make a real run on the company.
But Icahn may not be seeking a showdown. Time Warner's stock, down 7 percent for the year, could rise if Icahn keeps up the pressure. And the publicity can help him in other ways. Icahn has launched his new hedge fund company, Icahn Partners LP, after reportedly raising from investors about half of the $3 billion he had hoped. A high-profile clash with a corporate titan might draw in more money.
Whatever the motive, Icahn's ability to raise even $1.6 billion is a testament to his reputation, particularly given the steep management fees he plans to charge and the length of time for which he is asking investors to lock up their money--three times the one-year industry average. Most hedge funds struggle to raise $100 million in seed capital.
Asked if he has changed, Icahn says no. "I have always believed that too many companies are not properly managed, that the major problem is a lack of accountability," he says. "I haven't really changed my views at all, but the perception has changed. With all the scandals, just that more people agree with me."
Self-interest. So does Icahn see himself as a shareholder savior? "What I do certainly enhances shareholder value, but I'm not going to tell you that I do it only for that reason," he admits. A workaholic with an obsessive personality, he continues to construct deals mainly because he enjoys the challenge. "He just loves it. It is his hobby, in a sense," says Alfred Kingsley, who worked with Icahn for more than two decades before starting his own firm, Greenway Partners LP, in 1993. Not bad for a public-school kid from Queens who graduated from Princeton, quit three years into a medical degree at New York University, and made his first small fortune--a few thousand dollars--playing poker in the Army.
Icahn's tactics, no matter what companies or workers may think of them, tend to produce at least one result: profits for him and his backers. For the most part, it hasn't mattered whether Icahn has been successful in taking over the companies he has pursued. In 1982, for example, a successful leveraged buyout of textile company Dan River netted Icahn an $8.5 million profit on a $14 million investment. When the then bankrupt energy giant Texaco spurned his advances in 1987, Icahn still walked away $700 million richer. Icahn has consistently made annualized returns of 38 percent over the past 15 years, while his hedge fund company has returned 15 percent since its inception last November.
Not that there haven't been mistakes--most famously when Icahn outmaneuvered airline deal maker Frank Lorenzo, another Queens native, to take over TWA in 1986. It was a pyrrhic victory for Icahn. Once he was in, the tangled business proved hard to retreat from with a profit. Icahn was left with an airline facing immense competition and carrying debilitating debt, which only increased when he took it private in a leveraged buyout. His relationship with the union workers, who had once greeted him as the anti-Lorenzo "Uncle Carl," soured fast, with flight attendants picketing in front of his suburban mansion.
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