Icahn's Time Warner Fund: Suppose They Gave A Party And No One Came

Stocks: (TWX)

Late word is that Carl Icahn will not only up his stake in Time Warner, but that he will raise a special fund to add shares and hope to influence the company's management. He tried a similar strategy a few months ago.

The New York Times says that because Icahn is already heavily invested in TWX himself, he needs to start a new fund to build shareholdings in the media giant. Icahn has said that he will not charge investors a fee to put capital in the new vehicle which appears to have the sole purpose of buying TWX shares.

Although Icahn's idea of breaking TWX into several pieces and selling some of them off may not be a bad approach to increasing the company's value, his new program has two flaws. Either of them could kill the idea.

First, Icahn is fundamentally saying he does not want to put much more money into TWX. He want other institutions to put up the cash. Then, presumably, he will use the shares bought by the new fund, plus his own, to put pressure on the Time Warner board. The problem here is that Wall St. will want to know why Icahn has so little confidence in his plan that he wants others to share his risk. If it is such a good idea, why not fund it himself.

The second and more damning issue is that Icahn's first run at the company was a failure. Few people was to back a losing horse twice. Icahn had fairly strong support for his first go around. He got Lazard to do the break-up analysis. He found alternative managers to replace the top people at TWX. And, the plan went no where.

Breaking TWX into several pieces may be a good idea. But, nobody likes a loser.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies that he writes about.