Billionaire financier Carl Icahn has objected to the possibility of a billion-dollar investment tie-up between America Online and Google Inc, saying it may preclude AOL being acquired outright at a later date by the likes of Microsoft Corp.
In an open letter to the board of directors of Time Warner Inc, which owns AOL, Icahn said he was deeply concerned that the Time Warner Board may be on the verge of making a disastrous decision.
It was reported late Friday that Time Warner and Google were on the verge of signing a deal under which Google would pay $1bn for a 5% stake in AOL. An announcement is expected to arrive as early as today.
I believe it would be a blatant breach of fiduciary duty to enter into an agreement with Google that would either foreclose the possibility of entering into a transaction that would be more beneficial for Time Warner shareholders, Icahn wrote.
He named Microsoft, IAC/InterActiveCorp and eBay Inc as companies that could in future be suitors for AOL. A recent Goldman Sachs report had eBay and IAC described as better strategic partners longer-term.
Microsoft was thought to be a leading contender to invest in AOL, being shouldered out by Google at the last minute. The Goldman Sachs report, cited by Icahn, said that these two companies would be the least beneficial AOL partners.
While the companies concerned are not publicly talking about their plans, it is thought that Google’s primary motive for negotiating the AOL investment was protectionist — it did not want to see AOL disappear as a channel partner when Microsoft bought a stake.
Despite AOL’s dwindling fortunes, the company is still Google’s biggest partner. Google search-based advertising displayed through AOL’s properties grossed $420m, or about 10% of Google’s total revenue, in the first three quarters this year.
So, while the details of any potential Google-AOL deal are not yet publicly known, Icahn’s fears may not be ill-founded.
Icahn, who owns about 3% of Time Warner, said that he does not object to a Google-AOL deal in principle, but wants assurances that such a deal would not tie Time Warner’s hands when it comes to the possible future divestiture of the under-performing online unit.
He even signs off with a thinly veiled threat, writing: I want this letter to serve as notice to Time Warner’s directors that if they enter into a transaction that has that effect, shareholders will seek to hold directors responsible.