Dec 21, 2002

Financier sees accountability abyss

By Luisa Beltran, CBS.MarketWatch.com
Last Update: 1:28 PM ET March 14, 2003

NEW YORK (CBS.MW) -- For billionaire financier Carl Icahn, being called a corporate raider may be something of a misnomer. Especially in light of the scandals plaguing corporate America.

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The only people raiding companies are management, Icahn says.
Instead, Icahn prefers to be viewed as anti-establishment, as the voice that has spoken for years against irresponsible management.
We do not have corporate accountability in America today, said Icahn, who was speaking at a Buyout Symposium in New York. There is a pernicious intimacy between investment bankers and company boards. This is a major problem today.
Icahn is known for investing in companies he believes are undervalued because of either mismanagement or inefficiency, then acquiring enough shares to threaten or launch a proxy fight for control. His targets have included Viacom, Marshal Field and USX (the former US Steel).
He prefers hostile acquisitions; when a company is receptive to a takeover it makes him wonder why.
But buyout firms are facing troubling times. They have a glut of cash, but there are few entire companies for sale or other available investments, he says.
Icahn said some of the blame rests with chief executives, who earn hefty salaries and receive many benefits that preclude the notion of selling. What does a CEO want? he mused. You can''t reward a CEO enough.
Icahn says there are lots of very bad CEOs around, though there are good ones too. He cited the former chief of XO Communications, Dan Ackerson, who is now a managing partner with the Carlyle Group, as one of the few good chief executives.
The pill as poison
Icahn blames the poison pill, a strategy adopted to avoid a hostile takeover, for much of corporate America''s ills.
In a pill, or shareholder rights plan, the target usually tries to make its stock less attractive by allowing shareholders to buy more shares at a discount. This makes an acquisition more costly and time-consuming.
The strategy was developed by Marty Lipton of renowned M&A law firm Watchtell, Lipton, Rosen & Katz, and prevents an investor or group from buying more than a small piece of a company. The poison pill is one reason we have no corporate accountability, Icahn claims.
But Icahn said in an interview that he doesn''t plan to take a personal role in the campaign to change the shareholder rights plan. He said reform must come from the Securities and Exchange Commission, the federal courts and the exchanges.
I''m not a political guy, he said. It''s very hard fighting the establishment.
Icahn also lashed out at the fees earned by investment bankers in the bankruptcy process. In the case of XO Communications, which filed for Chapter 11 in June of 2002, the investment bank involved tried to secure a success fee of $20 million. Bankers typically earn this fee when the company emerges from Chapter 11.
Icahn is now chairman of XO Communications, a regional telecommunications provider. He beat out a competing offer last year to win control of the firm.
Icahn opposed the success fee because, he says, the bankers did nothing to earn it. He says the bankers in the XO situation failed to bring another bidder to the table. I never saw them. They never talked to me to raise my bid, he said.
Icahn mum on airlines, keen on telecoms
Icahn, who owned Trans World Airlines from 1985 to 1993, was reluctant to talk about the problems facing the airline industry.
American Airlines, the world''s largest airline and a unit of AMR Corp.(AMR: news, chart, profile) is expected to file for bankruptcy shortly. US Airways and United Airlines, a unit of UAL Corp.(UAL: news, chart, profile), have already filed for Chapter 11 protection.
However, Icahn said he does expect more industry consolidation.
The airlines can''t afford to pay what the unions want, Icahn said. There could be ups and downs, but it''s a difficult industry.
Elsewhere, he said the telecom industry could be a good investment. During the late 1990s, the sector became bloated with companies spending a tremendous amount on assets development.
Under the circumstances, telecom could be really good, he said. But that is looking ahead three to four years. He is, naturally, upbeat about prospects for XO Communications.
He also sees opportunities in the retail sector, and owns a fair amount of Perry Ellis International (PERY: news, chart, profile), which he thinks is well run.
Icahn, who shorted Internet stocks during the bubble, declined to comment on the problems facing AOL Time Warner (AOL: news, chart, profile). Time Warner is a powerful company, he said. Eventually these things may work out, but the Internet was so over-hyped and over-evaluated.
Luisa Beltran is a reporter for CBS.MarketWatch.com in New