Carl Icahn has provided this blog with some interesting fodder for posts over the past couple of years, and it looks as if the hedge fund investor is primed to do it again with his announcement yesterday that he intends to field a slate of directors to seek a majority on Time-Warner‘s 14-member board while hiring Bruce Wasserstein and Lazard Ltd. to help him win the proxy fight.
Icahn and a group of supportive investors have accumulated nearly 3% of the $85 billion media company in recent months amidst a publicity campaign that has highlighted the mistakes of current Time Warner management, including selling Warner Music Group and a big stake in the Comedy Central cable channel at what Icahn called “fire sale prices” and failing to remove the directors who approved Time Warner’s disastrous merger with America Online in 2001. Ironically, Wasserstein lobbied to be named an adviser to the old Time Warner after the company hatched its ill-fated $140 billion deal with America Online Inc. in 2000.
The relationship between Icahn — who usually acts on his own — and Wasserstein and Lazard reflects the changing dynamics of such big deals, where hedge fund activists such as Icahn are taking increasingly aggressvie positions in public companies and investment banks are being attracted to serve the hedge fund’s interests as opposed to the traditional role of advising the target company. Keep an eye on this battle as Icahn’s activism will force Time Warner’s management to provide a clear vision for the company’s future, which is never a bad thing for investors.

This Reuters/NY Times article reports that Peter Cartwright, the 75-year-old founder and chief executive of Calpine Corp., and Robert Kelly, the company’s CFO, resigned under pressure from the Calpine board amidst widespread speculation that the company is going to commence a corporate reorganization under chapter 11 a week after an adverse Delaware court ruling restricted the company’s ability to use cash from some of its asset sales. Calpine stock — which traded as high as $56 a share in 2001 — was down 71 cents to 54 cents a share as of the close of New York Stock Exchange composite trading yesterday.
Mr. Cartwright’s departure is widely viewed as the end of his goal to create a massive national power wholesaler in deregulated markets that could sell electricity without being limited to serving a specific territory or utility. Cartwright began the strategy in the mid-1990s and racked up $17 billion in debt as the company built a huge fleet of gas-fired plants in an effort to become the biggest power generator to wholesale power markets that had been deregulated and utilities that were leaving plant development to others. However, the company’s strategy has been under pressure over the past several years from increasing natural-gas prices (which ratchet up the fuel cost of the company’s power plants) and lackluster profit margins on the sale of wholesale electricity. That set the stage for the company’s sale of assets and the shut-down of money-losing power plants, which in turn led to last week’s adverse court decision. That decision concluded that Calpine had improperly spent $313 million on fuel for its power plants that came from $852 million in proceeds from the sale of assets that were collateral for corporate notes.
Interestingly, a few years back, with Calpine’s stock trading around $40 a share, Cartwright refused to have the company sell shares to raise capital because he did not want the dilution that would result from the stock issues. So instead, he took on the $17 billion in debt. Now, natural gas prices have tripled, Calpine has lost almost $700 million so far this year, the company can’t pay interest on its debt, bankruptcy looms, Cartwright is gone and the stock is at 20 cents.
What was that about not wanting dilution?

The Wall Street Journal’s Holman Jenkins has this clever column ($) today in the form of a fictional letter from Toyota to owners of its popular hybrid vehicle, the Prius. The main point of Jenkins’ column is that hybrid technology is not really “green” technology at all. Rather, it’s really just an expensive option that generates large markups for Toyota and its dealers. In so doing, Jenkins notes the following about the notion that a hybrid’s supposed fuel efficiency makes up for its higher cost:

Let us assure you that the Prius remains one of the most fuel-efficient cars on the road. Toyota applauds your willingness to spend $9,500 over the price of any comparable vehicle for the privilege of saving, at current gasoline prices, approximately $580 a year.
And should the price of gasoline rise to $5, after 10 years and/or 130,000 miles of driving, you might even come close to breaking even on your investment in hybrid technology.

I haven’t checked in on beleaguered doughnut franchisor Krispy Kreme Doughnuts, Inc. in awhile, so I noticed the company’s regulatory filing a week or so ago in which the North Carolina-based company announced that it is “highly unlikely” that it would be able to deliver its financial statements to lenders by a December 15 deadline. Although a publicly-owned company, Krispy Kreme has not filed a financial statement since September 2004 and is facing a January, 2006 deadline for having its stock delisted by the New York Stock Exchange. As the company continues the process of restating earnings by over $20 million for its first four fiscal years, the company’s stock — which traded at around $50 per share in 2003 — is trading closer to $5.50 per share now.
So, can this trendy maker of delicious doughnuts stay out of tank? Probably not, but this Business Week Online article surveys the company’s landscape and sets forth CEO Stephen F. Cooper‘s turnaround strategy, which is essentially to operate smaller stores and expand into foreign markets while selling more high-margin coffee. I’ve got my doubts about whether that’s a winning strategy, at least without a formal reorganization under chapter 11, but who knows? Mr. Cooper agreed to a success fee based on 1.7 million warrants that are convertible into shares at $7.75, so he is clearly betting on the company’s success. And the company still makes a good doughnut. However, as one commentator in the article notes, “the lines are no longer out the door.”