Icahn: No 'Disastrous' Moves

Come Wednesday, the Time Warner(TWX Quote) board is expected to ratify what it has already tacitly agreed to: the sale of 5% of America Online to Google(GOOG Quote). The transaction implies a value of $20 billion for the Internet service and expands an existing advertising and search agreement.

Time Warner will do the deal at the displeasure of 3% shareholder Carl Icahn, who has engaged Lazard to look at strategic alternatives for the large media company and propose an alternate slate of directors in time for its annual meeting next spring.

In an open letter to the Time Warner board released Monday, Icahn wrote: "I am not opposed to Time Warner entering into an AOL transaction that creates long-term value. 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 if this agreement would make it more difficult in any way or effectively preclude a merger or other type of transaction with companies such as IAC/InterActive(IACI Quote), eBay(EBAY Quote), Yahoo!(YHOO Quote), or Microsoft(MSFT Quote) etc., etc. ..."

Icahn said that while he believes there are major opportunities to enhance value at Time Warner with future combinations, such transactions "might not be achievable if Time Warner enters into such a long-term relationship" and later questions whether Google is the best partner for unlocking the value of the AOL asset.

"On the eve of a proxy contest, 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 or make such a transaction more difficult to achieve," Icahn wrote.

Icahn said he doesn't oppose the board's use of its business judgment to enter into a transaction as long as it does not destroy or impede Time Warner's future flexibility. He wants the letter to serve as notice to the board that shareholders will seek to hold them responsible.

On Monday shares in Time Warner were trading up 10 cents to $18.10.

Get Jim Cramer's picks for 2006.