Corporate Raider Icahn Targets KT&G

Carl Icahn, the 69-year-old U.S. financier, is reportedly giving up his bid to take over Time Warner, the world’s largest media group, and setting his sights on Korea Tobacco and Ginseng (KT&G), South Korea’s largest tobacco firm with around $2 billion in annual sales.

KT&G is rushing to collect information on Ichan and his strategies through Goldman Sachs, which previously advised Time Warner in its defense of its management rights.

CNN Says Icahn Will Focus on KT&G-

The Wall Street Journal reported yesterday that Icahn, who owns a 3.3 percent stake in Time Warner, gave up his plan to dominate the management of the media group.

Since declaring his participation in managing the media group last August, he has been demanding it split into four companies and purchasing its shares on a large scale.

The newspaper analyzed that he reached an agreement with Time Warner after facing opposition from major shareholders about dividing the group.

Under these circumstances, CNN predicted that Icahn would switch his focus to taking over ImClone, a biotech company, and Korea’s KT&G.

Icahn, whose personal assets total about $7.8 billion, is one of the most prominent buyers of corporations in America. Since the 1980s, he has made his name by earning hundreds of millions of dollars in profits from each hostile merger and acquisition he has made, including takeovers of TWA, General Motors, U.S. Steel, and Nabisco.

The securities industry and business community calls him “an influential figure who is in a different league from Sovereign Asset Management, which attacked SK Corp.”

Kim Young-jin, the 45-year-old director of Kim Young-jin M&A Research Institute, said, “He just has just one merger strategy: creating high profits. To that end, he mobilizes all the tools and methods that he can, including acquisition of management rights, sales of assets, and threats to management.”

The Second Round of His Takeover Attempt-

Icahn’s investment strategy often has a pattern.

He first selects a target corporation. He usually targets one easy to attack, which is undervalued, and whose stakes are well distributed.

He then secretly purchases shares and publicizes the fact after buying a certain percentage stake. After declaring his wish to participate in management, he presses management by buying the company’s own stock, selling real estate, and selecting executives.

Second, he wages a “war”, otherwise known as a proxy fight, with the company.

Third, he leaves the company with profit when the price of the company’s stock soars, or by demanding “green mail,” in which he sells the shares that he owns to a large shareholder with weak management rights at a higher price than the market price, if the stock price does not go up.

He sometimes uses a strategy of obtaining management rights by purchasing a 51 percent stake in a company and then selling it at a high price, just as he is doing in an ongoing acquisition of Fairmont Hotels and Resorts, a Canadian hotel chain.

Steel Partners, an ally of Icahn, is a hedge fund which invests more than 60 percent of its operational funds in the Japanese market. The company is led by Warren G. Lichtenstein, whom he recommended as an outside executive for KT&G.

Steel Partners often uses a strategy in which it publicizes that it is buying stock to launch a takeover bid, and gains a considerable profit when the stock price rises as a result.

Icahn, who has a 6.59 percent stake in KT&G, has begun securing proxy after recommending outside executives. The company said yesterday that it would also start to secure proxy starting February 20 to win more votes in a shareholders’ meeting in March. The second round of this fight has just begun.

Sang-Soo Kim ssoo@donga.com