Icahn warns Time Warner not to scorch AOL

Billionaire investor Carl Icahn on Wednesday warned the head of Time Warner and its board of directors that he would hold them personally liable if they resort to a “scorched earth” policy with regard to America Online as a way to fend off an upcoming proxy fight.

“Mr. Icahn believes that such action would be a breach of the fiduciary duty of loyalty and he would seek to hold [Time Warner chief executive officer Richard] Parsons and the Board personally liable for the inevitable damage to shareholder value,” The Icahn Group said in a statement. The group is composed of Icahn and several investment firms that control just over 3 percent of Time Warner’s outstanding shares.

Icahn is supportive of any transaction that reflects the full value of AOL, but he opposes any move to sell or spin off AOL too cheaply, according to the news release.

Earlier this year, The Icahn Group vowed to fight a proxy battle in order to gain enough shareholder votes to replace a majority of the company’s board of directors, purportedly to put shareholders in control of major decisions at Time Warner.

“We continue to believe that Time Warner’s stock is greatly undervalued and that the company is in need of a major restructuring,” Icahn’s group said in a Nov. 29 statement regarding the proxy fight.

The group noted that there were no shareholder-nominated directors on the board of Time Warner when it made “the egregious error of undertaking the AOL transaction.”

In a Jan. 2000 deal billed as one of the largest mergers in history, AOL announced it and Time Warner would merge into a new company, AOL Time Warner, a deal valued at nearly $350 billion at the time. Subsequently, the Internet bubble burst and business slid, erasing billions of dollars in shareholder value.

The Icahn Group issued the Wednesday news release in response to recent reports regarding a sale, spin-off or tie-up with AOL.

On Tuesday, the Associated Press reported that Time Warner is not interested in selling AOL, but instead is seeking only a partner to boost advertising revenue. The Wall Street Journal also reported that Time Warner may be nearing a deal with Microsoft to build an online advertising service designed to compete with Google.

Time Warner has been in discussions with Microsoft, Google and Yahoo Inc. over possible tie-ups with AOL, but so far no deal has been reached. Last month, Yahoo Inc. ended its bid for the company.

Google has stressed the importance of its current partnership with AOL, and said teams from both companies collaborate on a variety of activities. Google shares advertising revenue with AOL based on the traffic it gains through AOL’s Web pages.