Icahn Group Issues Open Letter To Time Warner Shareholders

    NEW YORK, Oct. 11 /PRNewswire/ -- Carl Icahn today announced that Icahn
 Partners LP, Icahn Partners Master Fund LP, Franklin Mutual Advisers, LLC,
 JANA Partners LLC, JANA Master Fund, Ltd., S.A.C. Capital Advisors, LLC and
 S.A.C. Capital Associates, LLC have written an open letter to shareholders of
 Time Warner Inc. (NYSE:   TWX). The text of the letter appears below.
 
     SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER
 DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY ICAHN PARTNERS LP, ICAHN
 PARTNERS MASTER FUND LP, FRANKLIN MUTUAL ADVISERS, LLC, JANA PARTNERS LLC,
 JANA MASTER FUND, LTD., S.A.C. CAPITAL ADVISORS, LLC, S.A.C. CAPITAL
 ASSOCIATES, LLC AND CERTAIN OF THEIR RESPECTIVE AFFILIATES FROM THE
 STOCKHOLDERS OF TIME WARNER INC. FOR USE AT ITS ANNUAL MEETING WHEN THEY
 BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING
 INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY SOLICITATION. WHEN
 COMPLETED, A DEFINITIVE PROXY STATEMENT AND A FORM OF PROXY WILL BE MAILED TO
 STOCKHOLDERS OF TIME WARNER INC. AND WILL BE AVAILABLE AT NO CHARGE AT THE
 SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV.
 INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY SOLICITATION IS
 CONTAINED IN EXHIBIT 1 TO THE SCHEDULE 14A FILED WITH THE SECURITIES AND
 EXCHANGE COMMISSION BY ICAHN PARTNERS LP ON OCTOBER 11, 2005.
 
     Dear Time Warner Shareholder:
     In life and in business, there are two cardinal sins. The first is to act
 precipitously without thought, and the second is to not act at all.
 Unfortunately, the Board of Directors and top management of Time Warner
 already committed the first sin by merging with AOL, and we believe they are
 currently in the process of committing the second; now is not a time to move
 slowly and suffer the paralysis of inaction, yet we fear based on their recent
 statements that the current leadership of Time Warner does not recognize the
 need to take bold action for shareholders.  The Time Warner PR machine would
 like you to believe that Mr. Parsons and the Time Warner Board have been
 performing well and taking the necessary steps to deliver value for
 shareholders, and it appears that many in the press have accepted this
 storyline.  But after taking a closer look at the years following the merger
 with AOL, it is clear that there have been a series of significant missteps by
 the Board and Time Warner's senior management which have resulted in the
 further destruction of value.  Unless this legacy of poor decision-making is
 fully recognized and the Board is held accountable, the dismal record of
 mistakes and inaction will continue to the detriment of shareholders.  Let us
 examine the record.
 
     The AOL Disaster
     Understandably, the Board and top management at Time Warner wish to put
 their role in the disastrous merger of AOL and Time Warner behind them.  The
 AOL disaster resulted in an incredible over $87 billion of goodwill
 write-downs over a two year period (greater than the current equity market
 capitalization of today's Time Warner) and the loss of over 75% of the
 Company's market value in two years.  However, when we match the fingerprints
 on the deal with those of the current directors, it becomes clear that the
 direction of the Company is still largely in the hands of those who played key
 roles in the merger.  Of the eleven pre-merger Time Warner directors who
 approved the deal, seven still sit on the Board.  Five other current directors
 came from the pre-merger AOL and also voted for the merger, bringing the total
 number of supporters of the merger to twelve out of fifteen on the current
 Board.  Richard Parsons, the President of Time Warner at the time and a key
 negotiator of the merger, was afterwards promoted to CEO and later Chairman as
 well.
     The lingering presence of these individuals forces us to ask, why are a
 majority of the same directors who signed off on the disastrous AOL merger
 still steering the corporate ship?  We also note that we are not the first to
 raise questions about the qualifications of the current members of the Board.
 In 2003, Institutional Shareholder Services recommended that shareholders
 withhold support for two current directors (Miles Gilburne and James
 Barksdale) saying they were too closely tied to the Company.  Also in 2003,
 CalPERS (the nation's largest pension fund) withheld its votes for two of the
 current directors citing questions about their independence.  Describing the
 corporate culture at Time Warner in 2003 following the resignation of Ted
 Turner (who founded CNN) and Warren Lieberfarb (who has been credited with
 helping to invent the DVD market) from the Company's management, Sanford C.
 Bernstein's Tom Wolzien said, "These twin departures signify a fundamental
 shift to the bland by a company that now has no place for genius or contrary
 points of view."
     We believe that in the time following the merger the Board compounded
 their already colossal mistake by failing to hold management accountable to
 more quickly address the subscriber deterioration at AOL.  Company management
 clearly had an early belief in broadband evidenced by the billions spent on
 Time Warner Cable, yet failed to effectively address the migration of AOL
 dial-up subscribers to broadband access providers (punctuating the question of
 why they merged with an approximately $150 billion narrowband business).
 While AOL was losing dial-up subscribers (approximately 9 million since 2001),
 Time Warner Cable promoted its own broadband service, Road Runner, yet never
 effectively promoted AOL on or integrated AOL with this platform.
 Additionally, during this time the Company allowed AOL to be marginalized on
 the internet while portals such as Yahoo! and search pioneers like Google
 captured larger online market share and currently have equity market values of
 greater than $45 and $85 billion, respectively.  We believe that had the Board
 forced management to move more quickly, they could have not only demonstrated
 a commitment to the driving principle behind the merger (synergies between AOL
 and the Time Warner businesses), but perhaps could have preserved at least
 some of the shareholder value destroyed by the merger.  Recently top
 management has begun highlighting AOL as a valuable asset and growth
 opportunity - where have they been since 2000?  To the extent that
 opportunities are now available to enhance value at AOL, which we believe
 there are, we implore management and the Board to move more decisively than
 they have in the past.
 
     Fire Sale Prices Have Stripped Value from the Shareholders and Created
 Windfalls for Others
     Time Warner management and the Board have sold valuable assets at prices
 that were at a substantial discount to their underlying value, thereby giving
 a windfall to buyers to the detriment of their own shareholders.
 
     -- Sale of Warner Music - We believe that the sale of the Warner Music
        Group ("Warner Music") last year to a consortium of private equity
        buyers for $2.6 billion demonstrated both a lack of business judgment
        by the Board and Mr. Parsons and an inability to operate businesses
        efficiently.  First, we believe the Company received a trough valuation
        and could not have chosen a worse time to sell this business given the
        state of the music industry at the time.  In the ultimate embarrassment
        to Time Warner, Warner Music's current post-IPO enterprise value of
        over $4.7 billion, is an 81% increase over the sale price (before even
        taking into account that the buyer group had already recouped the
        equity portion of their investment through pre-IPO dividends).  Second,
        the fact that Warner Music had greater value to a group of financial
        investors than to the world's largest media company is difficult to
        conceive, yet the private equity group was able to find $250 million in
        cost savings in just one year of ownership, more than the trailing
        twelve month EBITDA of the business when Time Warner owned the company.
        Rather than unloading this valuable asset, we believe that the Board
        should have challenged management regarding potential cost savings and
        forced management to turn this asset around.  We believe Time Warner
        clearly would have created far more value and lessened the debt burden
        on the Company had it focused more on the operations of Warner Music
        than on unloading it for what proved to be a cut-rate price.
 
     -- Sale of Comedy Central - The Board supported management's decision to
        sell the Company's 50% interest in Comedy Central to Viacom in 2003 for
        $1.225 billion.  Less than two years later, Morgan Stanley estimates
        the value of Comedy Central at greater than $4.5 billion(1), implying a
        valuation of $2.25 billion for Time Warner's stake, 83% more than it
        was sold for.  Similar to the Warner Music sale, we believe the
        Company's management sold Comedy Central in an effort to appear
        proactive but achieved only a loss of value for shareholders.
 
     These asset sales were consummated to achieve the goal of debt reduction.
 This goal, which in hindsight proved unnecessary (since Time Warner is
 currently underleveraged and has sufficient cash flow to support a much higher
 debt load), caused Time Warner management to sell valuable assets at
 distressed prices and thereby destroy shareholder value.  We believe that if
 the Board had provided the appropriate level of oversight, Time Warner
 management might have focused more on delivering value through the operations
 of the businesses or on receiving full value for the assets.
 
     Failure to Acquire MGM
     The Company cited "fiscal discipline" when it publicly withdrew from the
 bidding for MGM last year.  However, we believe that Time Warner management's
 habitual excess deliberation and inability to act decisively on behalf of
 shareholders were actually behind the Company's failure to win this important
 strategic acquisition.  According to the MGM proxy statement and news reports,
 Time Warner had the opportunity to complete the deal in early August without
 competition from the Sony group and was the favored bidder of Kirk Kerkorian,
 MGM's controlling shareholder at the time.  Yet Time Warner let three weeks
 slip away which ultimately paved the way for a group led by Sony Corporation
 to win the deal.  Then ten days later it made a last ditch effort to increase
 its bid only 90 minutes prior to the MGM Board vote, an attempt which was
 ultimately unsuccessful because Time Warner could not negotiate a deal in
 time.  As a result of the mismanagement of this process, MGM's extensive
 content library is today controlled by a major studio competitor (Sony) and a
 major cable competitor (Comcast).  As a writer for the New York Times put it
 afterwards, "Time Warner's last-minute effort raises some awkward questions
 about the earlier comments of Mr. Parsons about withdrawing from the deal.  If
 buying MGM was too expensive, as he had said, how would he justify making an
 even higher offer later?"
 
     Bloated Cost Structure
     We believe Time Warner has allowed costs to become bloated due to a lack
 of oversight by the Board and senior management.  Nowhere is this more evident
 than by looking at the Company's landmark headquarters in New York, which cost
 the Company $800 million to construct and offers such lavish features as a
 grand employee cafeteria with two story windows overlooking Central Park.  We
 question how such an extravagant building, which houses only a small fraction
 of Time Warner's employees, enhances shareholder value (and cannot help but
 wonder where the shareholders get to eat lunch).  Given this extravagance and
 the failure to cut costs at businesses like Warner Music described above, we
 intend to hire, in the next few weeks, an industry consultant to analyze and
 compare Time Warner's costs to its peers on a number of different levels to
 determine what other excess fat may lie in the Company's cost structure,
 including, but not limited to, perquisites afforded to the Board and top
 management.
 
     Conclusion
     We have previously made certain proposals in an eleven page position paper
 which we believe, if followed, will meaningfully enhance shareholder value.
 First and foremost, we believe that the greatest investment the Board can make
 at this time is to initiate a $20 billion share buyback.  The Board should not
 lose this opportunity to benefit all shareholders by taking decisive action.
 We also believe that all of Time Warner Cable should be spun out to give
 shareholders a choice of owning the world's best collection of content assets,
 a well run and growing cable franchise or some combination of both.
 Furthermore, although we are generally supportive of the recent acquisition of
 the assets of Adelphia, we are baffled by the logic of taking Time Warner
 Cable public through the issuance of 16% of the shares to former Adelphia
 distressed debt investors, an example we believe of poor execution by
 management and a lack of adequate oversight by the Board.  To follow the
 current course of a $5 billion buyback and the public distribution of only 16%
 of Time Warner Cable would be akin to inaction, which is inexcusable at this
 juncture, and would be yet another example of the Board's inability to
 perform.
     But whether or not you agree with our proposals, we believe the simple
 truth is that Time Warner is a company sorely in need of new shareholder
 representation on the Board.  We believe that Time Warner owns the most
 valuable collection of media properties in the industry and in fact the plan
 we have proposed is predicated upon the ultimate recognition of this value by
 the market.  However, we think that there is a clear distinction to be made
 between the value of these assets and the creative skill of the day-to-day
 operators on the one hand and the demonstrable failure of top management and
 the Board to translate this value into returns for shareholders on the other.
     Mr. Parsons has admitted that Time Warner's shares are undervalued and has
 made statements asserting that he intends to do something about it, but we
 believe that without the necessary conviction at the Board level no meaningful
 action will be taken.  As we have described above, we believe the current
 Board has demonstrated to date an inability to preserve or create shareholder
 value.  At the very least, bringing a new voice for shareholders to the Board
 will serve to remind the Board and management of their promises and
 priorities.  It will also make the Board aware that it is accountable to the
 shareholders and will send a clear message that shareholders' patience is
 running out.
     The incumbent members of the Board and top management may argue that the
 presence of new directors would be disruptive or is unnecessary.  We believe
 however, the presence of new independent directors who will aggressively
 question excessive costs and management and director perquisites and work with
 management to deliver value for shareholders is exactly the type of disruption
 that Time Warner needs.  With respect to whether a new voice for shareholders
 on the Board is necessary, we believe a review of the Company's stock price
 performance and the record described above should effectively end any argument
 that the Board is doing an adequate job and should be left to its own
 continued devices.  Given the fact that, despite its exceptional assets and a
 generally favorable operating environment, the Company's stock price has
 underperformed significantly since 2002, we believe the time for steps to make
 the Board and management more accountable are long overdue.  Mr. Parsons and
 the Board have made promises to address the stagnating stock price, but
 without new shareholder representation on the Board, we believe these
 promises, like so many others, will not be kept.
     Shareholder expectations for the boards and senior managements of publicly
 held companies have changed dramatically in recent years.  Shareholders across
 the globe have increasingly begun to realize that many of our managements and
 boards have failed to aggressively pursue value for shareholders and are
 holding them accountable.  Additionally they have become outraged at the
 perquisites and inflated pay that "rubber stamp" boards award themselves and
 top management in situations where share prices have languished.  We believe
 this is a healthy and necessary phenomenon and that there should be no sacred
 cows in the pursuit of shareholder value.  In the coming months we will be
 continuing to speak out about our belief in the need for a new voice for
 shareholders on the Board of Time Warner. We already know that many of you
 agree and look forward to communicating with you in the future.
 
     SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER
 DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY ICAHN PARTNERS LP, ICAHN
 PARTNERS MASTER FUND LP, FRANKLIN MUTUAL ADVISERS, LLC, JANA PARTNERS LLC,
 JANA MASTER FUND, LTD., S.A.C. CAPITAL ADVISORS, LLC, S.A.C. CAPITAL
 ASSOCIATES, LLC AND CERTAIN OF THEIR RESPECTIVE AFFILIATES FROM THE
 STOCKHOLDERS OF TIME WARNER INC. FOR USE AT ITS ANNUAL MEETING WHEN THEY
 BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING
 INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY SOLICITATION. WHEN
 COMPLETED, A DEFINITIVE PROXY STATEMENT AND A FORM OF PROXY WILL BE MAILED TO
 STOCKHOLDERS OF TIME WARNER INC. AND WILL BE AVAILABLE AT NO CHARGE AT THE
 SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV.
 INFORMATION RELATING TO THE PARTICIPANTS IN SUCH PROXY SOLICITATION IS
 CONTAINED IN EXHIBIT 1 TO THE SCHEDULE 14A FILED BY ICAHN PARTNERS LP WITH THE
 SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 2005 WITH RESPECT TO TIME
 WARNER INC. THAT SCHEDULE 14A IS CURRENTLY AVAILABLE AT NO CHARGE ON THE
 SECURITIES AND EXCHANGE COMMISSION'S WEBSITE.
 
     THIS LETTER IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE
 REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY,
 OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS LETTER. THE
 VIEWS EXPRESSED HEREIN REPRESENT THE OPINIONS OF THE ICAHN GROUP, AND ARE
 BASED ON PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO TIME WARNER INC. (THE
 "ISSUER"). CERTAIN FINANCIAL DATA HAS BEEN DERIVED FROM FILINGS MADE WITH THE
 SECURITIES AND EXCHANGE COMMISSION ("SEC") BY THE ISSUER AND CERTAIN
 COMPARABLE COMPANIES. INFORMATION INDICATED HEREIN AS HAVING BEEN OBTAINED
 FROM THIRD PARTIES IS USED WITHOUT ANY EXPRESS CONSENT OF SUCH THIRD PARTIES
 AND SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH PERSONS FOR THE
 VIEWS EXPRESSED HEREIN. NO WARRANTY IS MADE THAT SUCH SEC FILING DATA OR THIRD
 PARTY DATA IS ACCURATE. THE ICAHN GROUP SHALL NOT BE HELD LIABLE FOR ANY
 MISINFORMATION CONTAINED IN ANY SEC FILING OR THIRD PARTY REPORT. THIS LETTER
 DOES NOT RECOMMEND THE PURCHASE OR SALE OF ANY SECURITY. UNDER NO
 CIRCUMSTANCES IS THIS REPORT TO BE USED OR CONSIDERED AS AN OFFER TO SELL OR A
 SOLICITATION OF AN OFFER TO BUY ANY SECURITY. MEMBERS OF THE ICAHN GROUP
 CURRENTLY HOLD OPTIONS AND SHARES OF COMMON STOCK REPRESENTING AN AGGREGATE
 BENEFICIAL OWNERSHIP OF, IN THE AGGREGATE, APPROXIMATELY 2.8% OF THE
 OUTSTANDING COMMON STOCK OF THE ISSUER. ONE OR MORE MEMBERS OF THE ICAHN GROUP
 MAY FROM TIME TO TIME SELL ALL OR A PORTION OF THEIR SHARES IN THE OPEN MARKET
 TRANSACTIONS OR OTHERWISE (INCLUDING VIA SHORT SALES), BUY ADDITIONAL SHARES
 (IN OPEN MARKET OR PRIVATELY NEGOTIATED TRANSACTIONS, BY TENDER OFFER, OR
 OTHERWISE), OR TRADE IN OPTIONS, PUTS, CALLS OR OTHER DERIVATIVE INSTRUMENTS
 RELATING TO SUCH SHARES. THE MEMBERS OF THE ICAHN GROUP ALSO RESERVE THE RIGHT
 TO TAKE SUCH ACTIONS WITH RESPECT TO THEIR INVESTMENTS IN THE ISSUER AS THEY
 MAY DEEM APPROPRIATE, INCLUDING, BUT NOT LIMITED TO, COMMUNICATING WITH THE
 ISSUER AND OTHER INVESTORS, CONDUCTING A PROXY SOLICITATION, OR OTHER ACTIONS.
 MEMBERS OF THE ICAHN GROUP RESERVE THE RIGHT TO CHANGE THEIR OPINIONS
 REGARDING THE ISSUER AT ANY POINT IN TIME AS THEY DEEM NECESSARY. THE ICAHN
 GROUP DISCLAIMS ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN.
 
     (1) Morgan Stanley research report dated August 5th, 2005
 
 

SOURCE Carl Icahn

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