Carl Icahn is an interesting figure and was extensively involved in the Michael Milken junk-bond fueled business dealings of the 1980s. Milken eventually went to jail after close on a decade of investigative work and regulatory scrutiny, taking down Drexel Burnham investment bank in a scandal that mirrored the sleaze of Enron some ten years later. If you want a bit of background on this I can recommend a book called The Predators Ball.
Icahn is most famous for asset-stripping TWA and which led the airline having to file for bankruptcy in 1992 and the Karabu deal which led to the airlines 1995 bankruptcy. Proving that Icahn doesn’t always deliver the shareholder value that he crows on about.
It is interesting how this old school financier is now venturing into the world of bits and bytes. Having first taken a practice run (and failed) at Time Warner AOL, he now has his eyes set on Yahoo!.
However this time, if he succeeds in his quest to take control of Yahoo! he is relying on other technology companies allowing him to make a quick sale, these companies are cash-rich. Whereas Icahn’s position is likely to use at least some leveraged finance, leaving him vulnerable to be bargained down aggressively on price by taking their time in negotiating with him, alowing his interest payments to pile up and sit back as key Yahoo! staff leave to secure their future at Google or set up their own start-ups.
Yahoo!’s capital assets such as data centres are only part of the story, the most valuable asset is the talent within the business. This will present Icahn a unique challenge.
On a macro-scale Icahn’s involvement is interesting as it proves that technology companies have moved from being growth businesses to value businesses that are financially speaking indistinguishable from traditional industrial companies like Goodyear, Caterpillar General Motors or GE. Technology company boards may even have to start thinking about regular dividend payments to shareholders rather than building their historic cash-mountains to invest in the next new-new-thing.