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Hedge funds: Icahn takes activism to the next level

In battle for Time Warner, he must convince institutions and the proxy recommendation service advisers.

Carl Icahn’s bid to launch a proxy battle at Time Warner sets a number of important precedents for hedge fund activism. If he succeeds, Time Warner will be the biggest company ever to face a proxy contest for its board, launched by an activist with a stake of less than 3%. His attempt to change majority control on the board, possibly unwinding the Time Warner/AOL merger, the biggest in corporate history, is also dramatic. Yet his campaign has been given credence by the fact that one of the best advisory firms on Wall Street, Lazard, is working for him.

Critical mass

But Icahn’s battle is different to the campaigns of other hedge fund activists. With Time Warner, he cannot just rely on garnering the support of other hedge fund shareholders to build a critical mass of support but must convince the institutional investors that hold the majority of Time Warner stock of his case.

He says this is why he hired Lazard to work on an alternative plan for the company, which will form the basis of a proxy fight for the board.

“I only have 3% of the stock and that’s why we brought Lazard in,” Icahn said, speaking at the New York Society of Security Analysts corporate credit conference at the end of November.

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