Icahn Says deal With AOL/Google is Stupid and Outrageous

Icahn seeks to derail Google as partner of AOL

By Eric Auchard

Dissident shareholder Carl Icahn on Monday labeled as "disastrous" a new deal set to be unveiled this week between Time Warner Inc.'s America Online unit and Web search leader Google Inc., as the billionaire investor argued that AOL could do better. "Not only stupid, but disasterous and outrageous," he claimed.

Icahn said in a letter to Time Warner's board of directors that the company appeared to be on the verge of a "disastrous decision" following reports it is in talks to sell a 5 percent stake of its AOL Internet unit to Google Inc..

Icahn, whose group has a 3.1 percent stake in Time Warner, said he feared a Google pact may preclude a merger or other deals with the likes of eBay Inc., Yahoo Inc. IAC/InterActiveCorp, or Microsoft Corp.

"Like all shareholders, I am not opposed to Time Warner entering into an AOL transaction that creates long-term value," Icahn wrote. "However, I am deeply concerned that the Time Warner board may be on the verge of making a disastrous decision concerning an agreement with Google," he said.

In the past several months, Icahn has blasted Time Warner's every move as falling short of realizing the company's full value. He has hired investment bank Lazard Ltd to wage a campaign to replace a majority of Time Warner's directors.

A Time Warner spokesman declined to comment. "There's nothing new here, and given that, we're not going to comment," spokeswoman Kathy McKiernan said.

A Google spokesman was not immediately available to comment.

Shares of Google, which traded to record intra-day high level of $446.21, up 3.7 percent on the day, turned tail and fell back on news of Icahn's opposition to the potential new search and advertising deal between AOL and Google.

Google shares fell $5.55, or 1.3 percent, to close at $424.60 on Monday on Nasdaq. Meanwhile, Time Warner shares finished off 5 cents at $17.95 on the New York Stock Exchange.

Icahn, who has said he is waging an "all-out proxy battle" to force Time Warner to step up asset sales and streamline, cited a recent report by Goldman Sachs that argued that Google may not be the best long-term partner for America Online.

Wall Street analysts debated whether the $1 billion, which sources said Google was prepared to pay AOL for a 5 percent stake, was a meaningful calculation of the implied overall value of AOL -- $20 billion -- if it were spun-off.

Some analysts groused that the investment could simply be an expedient way for Google to keep AOL as a key customer and thwart rival Microsoft from gaining a foothold in advertising. Citigroup analyst Mark Mahaney calculated that AOL's business declined to just 1.9 percent of Google's net revenue recently.

Another financial analyst, who declined to be named, said Google may view the $1 billion stake as a small down payment to avert the loss of AOL as its biggest single customer and thereby defend its lofty $125 billion market capitalization.

Copyright 2005 Reuters Limited.

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