Michael Wolff on Time Warner: It's a Game of Chicken as Jeff Bewkes Mulls Options

Illustration by: Jason Ralsh

With a restless board and Carl Icahn lurking, the CEO weighs selling all or part of the company as Wall Street forces soon could remake (or end?) one of media's iconic players.

This story first appeared in the Jan. 29 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

Among the battles that Carl Icahn likes to relive is his 2006 attempted takeover of Time Warner. I was covering Icahn at the time for Vanity Fair and CNBC and hence became the recipient of many garrulous and ebullient late-night calls from the second-richest man in New York (after Michael Bloomberg). It would be hard to imagine anybody having a better time on the job than Icahn seemed to be having then. The Time Warner proxy fight had all the things Icahn likes most: media attention (Me: "Who runs your PR?" Icahn: "Whaddaya mean? I run it!"); spiritless management (Time Warner CEO Richard Parsons was winding down his tenure); and a simple solution (break it up). What's more, it had the perfect outcome: quick and profitable. While Icahn folded his proxy fight, he walked away with a big gain and, as he still would be crowing years later, the company eventually did everything he wanted it to do, fast tracking the C-suite elevation of Jeffrey Bewkes, and, in ensuing years, selling off its low-growth pieces, Time Warner Cable, AOL and Time Inc.

Ten years later, despite Icahn's denials — "I am not in Time Warner, not backward, not forward. I have no shares or options," he told THR on Jan. 12 — Wall Street suspects he is back again. Corvex Management, run by Icahn protege Keith Meister, has a saber-rattling Time Warner stake. Another big block of call options recently was bought by an unnamed investor who many think is Icahn, 79. Icahn-connected reporters are retail­ing Icahn-connected rumors. Or, in an alternative scenario, various whisperers inside or outside Time Warner are encouraging Wall Street to believe he is back again in order to pump the stock. Icahn himself said as much: "I have zero idea who is doing this, but … it's getting out there, and it's getting annoying," he told THR. If true, that would be a dicey strategy that might in fact bring Icahn back again.

Among the biggest media and entertainment conglomerates, only Time Warner and Disney are true public companies. At the others — 21st Century Fox, Viacom, CBS and Comcast/NBCUniversal — management holds tight voting control. Time Warner, however, is almost a pure product of the demands of Wall Street (this was true, too, in the past of Disney — but its size and success buffer it now), growing larger and smaller in its 26-year history, according to Wall Street whims and sieges. In 1990, print publisher Time Inc., with its Ivy League executives, and film and TV studio Warner Communications, with its street-smart guys, merged because they both thought they were takeover targets (Rupert Murdoch made a run at Warner in 1984). Then Turner was added in 1996 during Wall Street's peak enthusiasm for media conglomeration (and to stymie Ted Turner's ambition to buy CBS). Then, in 2000, came the disastrous dot-com-mania merger with AOL, plunging the company into despair and leading to Icahn's bid. Then, in 2014, Murdoch struck with an $80 billion offer, committing CEO Bewkes to daunting stock price goals in order to stave him off.

Now Bewkes, 63, has entered 2016 facing two Wall Street strikes against Time Warner.

The first is a conviction among aggressive investors — including many activists and hedge funds that bought into Time Warner during the Murdoch raid — that great volatility in the media industry, coupled with the fact that media is one of the few undervalued sectors, means imminent consolidation. Media is the next pharma: first one deal, then two, then 10.

The other is that Bewkes, following the Fox bid of $85 a share, promised he could, in short order, push the price to $100 a share, setting up a clear success-failure measure.

Bewkes always has packaged himself as the ideal Time Warner manager, a technician CEO, without evident grandiosity, or even sentimentality, dedicated to the kind of corporate engineering that maximizes share price growth. But the Fox bid rather called his bluff, revealing him to be a guy who, even in the face of a rich offer, wanted to hold on to his company.

But despite aggressive cost-cutting efforts, the world (or Wall Street) mostly has conspired against his efforts to defend his turf. Investors have chosen to believe digital media's self-interested case for cord-cutting and the inevitable fall of traditional television delivery; what's more, Wall Street believes the high stock prices of tech companies, such as Amazon or Apple or Alphabet, offer a perfect currency for buying media companies. Bewkes' own clunky remarks to analysts this fall about the need for new programming investment helped push the price down by 10 percent. Hence, Time Warner is officially up against it. Now trading near $70, investors believe there's an easy $30 more for the taking.

But from the investors' point of view, that extra $30 only materializes if something happens.

This is not just the greed of activists talking but of yearslong holders. Dodge & Cox, the mutual fund company and longtime Time Warner investor with a strong relationship with Bewkes and other board members, has, according to one hedge fund closely following the company, been having a pointed discussion with management about selling the entire company or parceling off key assets.

Except that now the stock is going up — as the market goes down. This is happening just as the window draws open in late February for a proxy fight before the annual shareholders meeting. Management's play and timing may be to encourage the sense that a transaction is possible — and is coming. One observer in a competitive media conglomerate's C-suite sees the recent suggestion in The New Yorker of an HBO spinoff as an idea encouraged by Time Warner executives themselves. The drumbeat in the New York Post about buyer interest in the company largely has come from media reporter Claire Atkinson, for whom Gary Ginsberg, Time Warner's head of communications (and before that Post owner News Corp's head of communications), is a frequent source (Icahn, too, is a frequent Atkinson source). What's more, Bewkes recently suggested, however enigmatically, that a sale of the whole company was a possible strategy, according to the Post.

If management is amenable to a deal, there's no reason not to let them be the ones to do a deal. On the other hand, the window for a proxy fight also closes very quickly — thereupon, absent an attack, manage­ment would have another year to consider its options. According to some reports, this might involve rallying to buy a stake in Hulu, or, conversely, leading a new initiative to hold back VOD deals and defend the cable bundle, longer-term rather than immediate share-price-building strategies.

In other words, it's something of a game of chicken, with Icahn now revving his rumor engines. Does he or do other activist investors increase the pressure for an endgame? Or do reports of that pressure encourage a bid for the company, which, at this point, Bewkes probably could not turn down. (In early January, Benzinga reported another offer from Fox of $105 a share, which Fox immediately denied.)

In any event, no one seems to believe that there is a return to the status quo at Time Warner. Something happens. Most likely that, in 2016, it disappears from this Earth.