A long awaited report recommending the splitting up of Time Warner in four parts has received a cool reception from Wall Street analysts.
The 343 page report - which Carl Icahn, the activist investor, commissioned from Bruce Wasserstein, the head of Lazard - argued that management mis-steps had already cost shareholders $40 billion (€33.47 billion).
Issued on Tuesday, the report recommended that Time Warner - which owns AOL, the Warner Brothers studio, Time Inc magazines, HBO and CNN - be split into four publicly traded companies: the AOL online division; a film and cable networks company; a publishing company and a cable operator.
The plan also called for slashing corporate expenses by cutting jobs, combining operations and streamlining overheads.
Icahn also wants debt increased to allow a $20 billion share buy-back and that costs be cut to boost shares beyond their current $18 range.
"We were disappointed that nothing really new came out of their presentation or their report," said Doug Mitchelson, analyst at Deutsche Bank. He added that a $20 billion repurchase could overleverage the company and that some of the valuation assumptions used were too optimistic.
The report will form the basis of Mr Icahn's campaign to push through a restructuring at Time Warner. In one of the biggest proxy fights ever, he plans to put forward an alternative slate of directors at Time Warner's annual meeting in May, although Mr Icahn only speaks for 3.3 per cent of Time Warner's shareholders.
Analysts questioned Lazard's estimate of the value of Time Warner Cable in particular. The report assumes it would trade at a multiple of eight or nine times operating cash flow, whereas cable groups such as Comcast trade at a lower level of 7.5 times. Jason Bazinet, analyst at Citigroup, who advocates a split of Time Warner, said this would increase the share price to $21.
He said the key difference was the extra $1.76 per share, or $863 million that Lazard attributed to overhead reductions.
"This may be too optimistic," Mr Bazinet said, adding that it was not clear that costs would be reduced by splitting the company - a move that could increase overheads. Another question raised was why Mr Wasserstein had not discussed the stock price performance of Viacom and CBS, which split at the beginning of this year.
"The glaring omission . . . is the share price performance of the companies, in and out of media, that have already split apart," said Laura Martin, analyst at Soleil. Douglas Shapiro, analyst at Bank of America, was sceptical the Icahn plan would muster investor support. However, he said Time Warner shares might still rise.
