Can Carl Icahn help or hurt BEA?

Billionaire investor has his sights on the software maker, but it's not clear whether he makes a difference to the companies he targets. Chart: Carl Icahn's financial wake

Billionaire investor Carl Icahn is pushing hard to get BEA Systems on the auction block.

Last week, Icahn raised his ownership stake in BEA to 13.2 percent from slightly more than 11 percent. Icahn is calling on BEA to put the proverbial "for sale" sign in its window and may threaten to pursue a proxy fight to get a seat on the company's board of directors.

A BEA representative declined to comment on the company's communications with individual shareholders, including Icahn, but said: "BEA maintains an active dialogue with all its shareholders and welcomes their views and opinions."

Icahn's recent move to increase his ownership stake inched him closer to triggering BEA's antitakeover defense, otherwise known as a shareholder rights plan, or poison pill. The poison pill would flood additional shares on the market and dilute his holdings, should his ownership stake hit the 15 percent mark. It's unlikely Icahn will cross that critical point.

BEA, of course, is just one of a number of companies Icahn has put in his crosshairs. But would BEA investors benefit from Icahn's involvement? If his recent track record is any indication, the answer would be "not necessarily." The results at two companies where Icahn has gained board seats within the last years have been disappointing: biotechnology company ImClone Systems has seen stagnant revenue and declining profits, while video rental giant Blockbuster has continued to endure falling revenue and lingering multimillion-dollar net losses.

Meanwhile, the financial conditions at two of his more high-profile targets, Motorola and Time Warner, have not substantially deteriorated since he moved on without a board seat. Revenue for Motorola's third quarter, which just ended, is expected to remain flat from the quarter before (when Icahn settled his board fight), while a $28 million second-quarter loss is expected to be followed by an $84.5 million profit, according to Wall Street estimates. And Time Warner's third-quarter revenue is expected to tick up by more than $1 billion to $11.5 billion, compared with the first quarter of 2006 (when Icahn gave up his play for a board seat), but Wall Street is expecting the media giant's third-quarter profit to fall to $915.4 million from the $1.5 billion profit from the quarter in which Icahn gave up his fight.

The mixed results extend to stock prices. Share prices at both Time Warner and Motorola remain about the same as when Icahn made his moves on the companies. But shares of the companies where he secured a board seat have had mixed results. Blockbuster's stock price is trading at roughly half the level it was when Icahn joined the board, and ImClone is up by nearly 25 percent.

"Some of the things he advocates is for improving the stock in the short term, but not necessarily managing the company for the long term," said one portfolio manager, who was approached by Icahn's representatives in both the Motorola and Time Warner investor call to arms. "Our time horizon is three to five years, and his time horizon is so much shorter."

But the portfolio manager, who spoke on condition of anonymity, said one of the more surprising aspects of both battles was a lack of sophistication Icahn's representatives appeared to have in understanding the businesses of Motorola and Time Warner.

"During conference calls, I was surprised his people often didn't know what they were talking about," the portfolio manager said. "They weren't as sophisticated as I thought they'd be on the companies' businesses."

Motorola, Time Warner and Blockbuster declined to comment. Icahn did not return repeated calls to his office and an e-mail.

Icahn isn't generally known for beating on the doors of technology companies, largely because the industry is often viewed as a growth sector with promising, and often pricier, stocks. So why Motorola and BEA? One portfolio manager noted Icahn may have been willing to make these tech plays because Motorola is viewed as having commodity products with its cell phones, while BEA is a midtier business software player stuck behind giants like SAP and smaller niche players like That's the kind of company he may believe he can squeeze out "value."

Carl Icahn
Carl Icahn

Despite his mixed record, it wouldn't be fair to say that Icahn has had no impact on companies that didn't give him board seats. Lawrence Harris, a wireless equipment and devices analyst for Oppenheimer, noted Icahn helped spur some operational changes at Motorola, in addition to prompting the company to undertake more share repurchases.

"He wanted the board to become more actively involved in the company and supervision of operations," Harris said. "There is some evidence to suggest that has happened."

Since the beginning of the year, Motorola's chief financial officer retired and was replaced, on an acting basis, by Thomas Meredith, an outside Motorola board member and former chief financial officer of Dell.

Meredith was named acting chief financial officer in March, a month after Icahn and his affiliates notified Motorola of plans to greatly increase their stakes in the cell phone device maker. Icahn and his affiliates informed Motorola in February they were filing to acquire in excess of $119.7 million and up to $500 million in additional Motorola shares, beyond the 1.39 percent ownership stake it held in January.

Even after Icahn's proxy battle to get a seat on the Motorola board failed in May, the device maker took a rather uncommon step in July by naming its No. 2 executive, Greg Brown, to its board of directors. Brown, president and chief operating officer, joined Ed Zander, Motorola CEO, on the board.

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