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Time Warner Has Its Say

Dick Parsons & Co. can knock Icahn out of the spotlight Wednesday.
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The next move on the chessboard belongs to

Time Warner



Investors in the embattled New York media giant have plenty to think about as Wednesday morning's earnings report approaches. As always, Wall Street will want detail on how the company is faring in the cutthroat businesses of making movies, selling magazines and providing cable service.

But more to the point, hedge fund activist Carl Icahn continues to pressure management to make big changes, and with his latest move he appears to be finding some traction. Now, the question is whether Time Warner will cede some ground to Icahn -- as the company

did in August with plans for an expanded stock buyback -- or dig in and slug it out on the merits of management's own view.

On Monday, Icahn signed former


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CEO Frank Biondi to run Time Warner should Icahn prevail in this spring's proxy fight. Biondi is no stranger to the rarified air of big media circles, having served under Sumner Redstone for the better part of a decade at Viacom after logging time at Universal Studios and the old Home Box Office.

Icahn's failure to move Time Warner shares during his six months of chest-beating has become just as much of a story as his rantings on Time Warner's bureaucratic culture and the price of its cafeteria. But that may be changing, what with the stock up solidly on heavy volume Monday and Biondi's appointment giving Icahn's alternative slate much-needed credibility.

A hedge fund manager who is long Time Warner says he feels Icahn is being "underestimated in terms of what he can do. Biondi is no joke."

The Biondi appointment comes little more than a week before Icahn is due to unveil his bigger road map for change at Time Warner. Icahn has hired Lazard Freres hard hitter Bruce Wasserstein to map out a strategic diagram, and Lazard Freres is expected to deliver a full report imminently.

Throughout his push to boost Time Warner's share price, Icahn has increasingly hammered on what he calls the bloated, bureaucratic culture at the company, symbolized by its lavish new headquarters on Manhattan's tony Columbus Circle.

In Monday's press release, Biondi surprised no one by saying he wants to make Time Warner "a far more nimble, market-driven organization by reducing its duplicative $500 million-a-year corporate overhead and by freeing the individual companies within Time Warner to successfully pursue their creative and strategic interests." Icahn has been saying the very same thing for the better part of six months.

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But in a conversation with

Monday afternoon, Icahn pointed to a "secular change taking place in the corporate governance world." He pointed to the poor performance of Time Warner stock under current management and said he believes investors will soon embrace results-oriented leadership. He said that means Wall Street will take note of the virtues of splitting the company up -- and of some of the "waste" in the company's management and PR structure.

Time Warner has repeatedly defending its spending and its strategy, but Icahn reiterated that his issue with CEO Dick Parsons isn't personal. Rather, Icahn points to what hasn't happened in terms of growth at the company. "They've had four years with AOL, and now they're waking up to the facts about voice and broadband," Icahn says.

All this will be in the background as Time Warner posts report year-end earnings on Wednesday morning. Of particular note will be the company's success in parrying forays onto its broadband turf by rivals ranging from





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Analysts will be looking for the company to earn 22 cents per share on just under $12 billion in revenue for its fourth quarter.

Prudential says some strong DVD releases coupled with

Harry Potter and the Goblet of Fire

during the quarter should translate into strong film division results, while healthy ad trends should boost the networks division.

Prudential says cable should see growth in the 13% range on $2.49 billion in revenue. Analysts there expect the cable business to generate 615,000 new revenue generating units this quarter, up 46% from the 420,000 achieved in the same period last year.

A cable and satellite report put out by Goldman analyst Lale Topcuoglu on Monday says the firm is "expecting cable fundamentals to remain strong in 2006 with a modest slowdown in year-over-year data sub growth, stabilized basic sub adds benefiting from triple play, and relatively flat capital spending owing to continued DVR uptake." Goldman seeks to do business with covered companies.