the audit

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Raiding corporations is fun. And it's not as hard as it sounds - especially when you can get a passel of reporters to lend a hand.
February 2, 2006

Raiding corporations is fun. And it’s not as hard as it sounds — especially when you can get a passel of reporters to lend a hand.

Just ask Carl Icahn.

For the past six months, Icahn has been attempting to take control of the world’s largest media company, Time Warner. This week, Icahn announced that he had lined up Frank Biondi, former CEO of Universal Studios and Viacom, to become the next CEO of Time Warner — that is, if fellow shareholders join his campaign to topple the company’s leadership.

Whether Icahn ultimately succeeds at wooing other stockholders remains to be seen. But in the meantime, Icahn, with all his hoodlum charm, seems to have New York’s financial journalists swooning.

A number of news organizations, including USA Today, the Financial Times, the Los Angeles Times and The Street reported on Icahn’s latest salvo. In nearly every case, reporters respectfully noted Biondi’s credentials and dutifully quoted the shadow CEO as he sat back and fired pot-shots at the company’s current leadership.

“This is about a failed business plan; it isn’t personal,” Biondi told the Los Angeles Times. “There ought to be a way to unlock value.”

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“In order to achieve true potential, Time Warner’s culture must change to enable each of its separate business units to develop their own strategies and capitalize on their leading roles in the rapidly evolving media sector,” Biondi told the Financial Times.

Elsewhere The Street quoted directly from Biondi’s press release, in which he claimed that he wants to make Time Warner, “a far more nimble, market-driven organization by reducing its duplicative $500 million-a-year corporate overhead and by freeing the individual companies within Time Warner to successfully pursue their creative and strategic interests.”

For an added bonus, The Street, cashing in on founder Jim Cramer’s hedge fund social circle, was also able to interview Icahn. “They’ve had four years with AOL, ” Icahn said, “and now they’re waking up to the facts about voice and broadband.”

So what exactly are the “facts” about Time Warner? Is the company really a crippled, anachronistic wreck that has to shed weight or sink?

Time Warner spokespeople have consistently refused to comment, which certainly hasn’t helped their cause. But with the flacks having gone mum, the time had come for reporters to roll up their sleeves, scour the nitty-gritty details of Time Warner’s business plan, and … ah, never mind.

The truth is, most of New York’s financial journalists seemed lost without the flacks to guide them along. In the end, they gave Biondi a free pass. This, no doubt, is just what Icahn had predicted.

One columnist, though, stood out for challenging Icahn’s position and also explaining the basic business strategy of Time Warner’s current CEO, Dick Parsons.

“This is a tough time for media companies,” wrote Alan Murray in the Wall Street Journal (subscription required). “The Internet is rapidly breaking down old ways of doing business, and no one is quite sure what the new ways will be. “

“Many investors are eager to place bets on how this future is going to turn out,” added Murray. “Some put their money behind Internet companies such as Google, guessing they will win all the marbles. Others think content will be king, and back a company like Walt Disney Co. Still others buck the trend and invest in the uncool distribution companies, such as cable operator Comcast Corp., because they are currently a good value. Time Warner flummoxes them, because it is all of the above. It isn’t a so-called pure play.”

“But Mr. Parsons isn’t a betting man,” noted Murray. “He has described his company as a ‘giant hedge.’ The combination of Internet, movie-production, cable-programming and cable-distribution businesses — not to mention the magazines that are the company’s roots — leaves him prepared to deal with whatever the future might bring, he argues.”

“[A]fter six months, it is clear Mr. Icahn hasn’t persuaded the smart money to move his way,” concluded Murray. “It is time for him to back down.”

And it is time for reporters to start challenging Icahn’s self-serving assertions.

Felix Gillette writes about the media for The New York Observer.