
When Carl Icahn Ran a Company: The Story of TWA - bitonomics
http://blog.pmarca.com
======
jcampbell1
For those that don't know what is going on, here is the backstory:

Carl Icahn has recently bought a bunch of ebay stock. He has claimed the
company is mismanaged. He has also personally attacked Marc Andreesen. Here is
the accusation from Ichan:

1) Marc Andreesen was/is on ebay's board.

2) While on ebay's board, Marc bought most of Skype from eBay.

3) He flipped Skype to Microsoft in less than 2 years, earning himself a
multi-billion dollar profit.

Carl Icahn is running Marc Andreesen name through the mud. The basic
accusation is that if Marc knew Skype was so valuable as the smart phone wars
were heating up, he had an obligation as a board member to give ebay better
advice on the divesture.

Now Marc is fighting back.

This is a comic schoolboy fight among billionaires.

Edit: After a bit of fact checking, it looks like A16Z only invested $50M in
the skype deal. Their fund at the time was around $300M. His gain was on the
order of $150 million, not billions. A16Z only had around 2% of skype, and
ebay retained 35%.

~~~
3327
Carl Icahn is scum. He does serve a purpose, and scum cleans out scum every
once in a while. But I believe he is a virus and a destructive force
dismantling companies for personal gain. Although he is scum, if there were
virus's like him, large companies would live on forever and have nothing to
fear. Interesting mechanics at work.

~~~
quanticle
I upvoted you, but I'm not sure I agree. If you look at people who've really
disrupted industries, they don't tend to be like Carl Icahn. Increasingly, as
I read up about what happened during the M&A boom of the '80s, it does seem to
me that finance played an essentially destructive role during that decade and
the three that have followed. I don't see very many advances that would have
been impossible without the financial industry. Instead, I see an industry
which has become focused on short-term profits in exchange for long-term
bailouts. Carl Icahn epitomizes this trend. That's why so many people hate
him.

~~~
barry-cotter
Leveraged buy outs aren't about disruption, they're about efficiency. Any
company worth doing a hostile takeover of has a working business model
(product market fit) and the acquirer is betting they have a lot of
expenditures that are basically irrelevant to what they do to make money, or
they are running at far below full utilisation on some resources or
capacities, which can be cut without materially effecting anything the
customer really cares about.

It usually sucks to be the employee of a company that's just been LBOd because
layoffs are almost certainly coming, and whether they are or not, you're going
to have to do more work, probably with less resources.

But for society as a whole it should be a win if competently executed; getting
the same product/service out of less resources leaves the now excess resources
free to be used elsewhere.

~~~
walshemj
well most of the time its about asset stripping and loading up a company with
expensive debt and selling it before the chickens come home to roost as a
recent number of company collapses in the uk proves)

Or its about forcing companys to do trendy things - bad for the long term by
selling off core assets on the cheap BT selling O2 is a classic example.

------
argumentum
In my view, after his humiliation by Apple's board, Carl Icahn feels his power
(and by proxy the power of wall street) slowly and surely being stripped away
by tech. This is at the root of his obsession with pmarca, who famously
claimed that "software is eating the world."

The world that's being eaten is the world of Icahn and wall street financiers
like him. The tech industry has its own source of finance (namely angels, vcs,
y-combinator etc .. people like pmarca). Icahn's recent attention seeking is a
symptom of the despair he feels at no longer being needed.

Good riddance, in my opinion.

~~~
dpcheng2003
I can't presume to understand Carl Icahn (as you admitted as well) but IMHO,
this is untrue and can lead fellow HNers into an echo chamber.

First, Wall Street's role in capital markets towers over Silicon Valley.
Venture Capital Assets Under Management is approximately $200 billion.
Blackrock, the world's largest fund, has $4.3 trillion AUM.

Second, while I believe pmarca acted entirely in good faith and is legally in
the clear, there is enough "there" to begin fighting a proxy war. For example,
the (tech) market was more forgiving when Dan Loeb fought Yahoo because it got
the outcome we wanted (Marissa joining, Yahoo focusing).

Let's not conflate what is arguably an ill-advised but legally legitimate
proxy war with a misdirected turf war between finance and tech. As a point of
reference, I'm a tech co-founder (who poorly codes) and a former investment
banker.

~~~
argumentum
> _First, Wall Street 's role in capital markets towers over Silicon Valley._

True, but what's the _delta_? Where are the sources of _new_ power (and
subsequently wealth) being generated? Why, for that matter, are you a _former_
investment banker and now a tech-cofounder and coder? As I'm sure you know,
you're not the only one who's made that (smart) move.

What moving around money was to the 19XXs, moving around information is to the
20XXs. That's the crux of "software is eating the world".

AUM doesn't seem a useful metric for power, in fact it's debt and so it all
depends on what you do with it. What % of those assets are depreciating? How
fast are the % of assets that are appreciating doing so?

I know little about capital markets, but these seem like the obvious begged
questions, don't they?

~~~
dpcheng2003
New power/wealth generation is and will be in finance for the foreseeable
future. I can go into great detail on this but for TL;DR purposes, I will
generalize: finance > tech in making aggregate money because finance only
cares about making money and tech cares about a lot of other things, which in
turn generates money.

I moved into tech because I liked it, not to make money. If I were still in
investment banking, I'd be making 7figures a year (and killing my soul in the
process). This is not a judgment call; it's a personal choice. There exists
good-willed bankers as well as selfish, rent-seeking coders.

Moving money around has not been limited to the 19XXs. It's been around since
humans put a face of an important person on some piece of metal (actually
earlier, but it lacks the imagery).

~~~
argumentum
Power and money aren't the same thing. Power is the ability to control your
environment .. i'd say that's _exactly_ the "lot of other things" that tech
cares about. Power derives from generating _wealth_ , which is making people's
lives better.

Of course, people have always moved money (and information) around (and always
will). Just as we've always moved goods around. That wasn't my point. When
"Brittania rules the waves" became Britain's national anthem, it was because
ruling the waves (and moving goods) was the main source of power in those
days. Since then, shipping has become a commodity. This is now happening to
finance.

~~~
dpcheng2003
Agree to disagree my friend. I wish you well.

------
arbuge
Financiers like Icahn are motivated by short term profits above all else.
Building a company takes people with a long term vision. The two are often not
compatible. Having a leech trying to bleed out every cent as soon as it's made
is not generally a good thing unless your company throws off wads of unneeded
cash like nobody's business.

~~~
hnnewguy
> _Financiers like Icahn are motivated by short term profits above all else._

That's one way to look at it.

Another is to note that Icahn built a thriving financial company that has
survived for over 4 decades, and employs over 60,000 people globally. I'd say
that requires long term thinking and demonstrates a bit of business acumen.

~~~
x0x0
that's the only way to look at it; Icahn is a thieving sack of shit. Look at
TWA: Icahn got fucking paid no matter whether TWA succeeded or failed. I can
_maybe_ see how these leeches ought to get 1/2 billion dollar payouts if they
come in and rescue a company, but 0.5B when they ruin a company?

Heads I win, tails you lose.

~~~
EC1
What puts you in a position to be an objective judge of the dealings of
billionaires?

~~~
x0x0
their behavior, particularly said behavior's effects on others

------
Aqueous
It's kind of absurd how closely Carl Icahn's mirrors that of the story of
Gordon Gekko in Oliver Stone's movie _Wall Street_. What Icahn did to TWA is
pretty much exactly what Gekko did (or planned to do) to Bluestar Airlines in
that film. Longer period of time - but in principle, very similar.

~~~
auctiontheory
I was just about to post exactly this. Anyone interested in what Wall Street
actually does needs to watch this movie.

I have an MBA. I have nothing against making money. But while it's possible to
make money by _creating something of value_ , it's unfortunately possible to
make even more money while doing the opposite.

~~~
refurb
From what I've read, Icahn argues that the companieshe's going up against
aren't do a good job of running the company. If that's true, Icahn is doing
shareholders a service.

~~~
protomyth
Given what he did with TWA and reselling tickets, its hard to think that
served any other shareholder but himself.

~~~
refurb
Whenever I hear a story about someone being "underhanded" and "of low
character" I always see what the other side of the story is. Usually, the
truth isn't so straightforward.

It appears that TWA owed him money so he negotiated the cheap ticket as a form
of payment...[1] How convenient that Marc left that out of his blog post...

 _In the interim, Icahn negotiated for airline vouchers from the company in
lieu of the $190 million that TWA owed him. As the deal included the provision
that he could not sell these tickets through travel agents, Icahn founded
LowestFare.com, where he both sold the tickets and created a revolution in the
travel industry._

[1][http://www.investopedia.com/articles/financial-
theory/08/car...](http://www.investopedia.com/articles/financial-
theory/08/carl-icahn-lift.asp)

~~~
protomyth
So, how did that help the other shareholders?

~~~
refurb
I don't know the details, but maybe it kept the company from filling
bankruptcy by a few months? They didn't have the cash to pay the loan, so they
offered the tickets.

~~~
protomyth
Selling off the most profitable route, tickets, short ordering replacement
aircraft - there is not one thing he did that benefited anyone but himself.
Nevermind long term company value.

~~~
refurb
That doesn't make any sense. Icahn is a shareholder himself and he mainly
makes his money through share appreciation. If the share price goes up, all
shareholders benefit.

I don't know enough about the TWA business dealings, but sometimes a company
is more valuable broken up.

~~~
protomyth
Did you read the article you linked to with the stock buy-back, ticket sales,
and then tanking it in Chap 11? That didn't benefit the other shareholders.

------
adventured
I like to see them swinging back at Icahn.

He uses wildly over-dramatic statements ('ebay is the worst run company ever')
to try to force boards to do things that are specifically in his short term
interests. He has absolutely no concern for the long-term well being of a
company. After he gets his stock pop, he liquidates and is gone. Icahn's
entire strategy operates strictly on the basis of greenmailing the leadership
of a company into discharging cash into his lap. He will say anything he has
to in order to generate that outcome.

------
pessimizer
Andreeson's defense seems to be that Icahn has had as many conflicts of
interest and selfish motives on boards as he has, if not more.

I'm not sure that's a good defense: "He's killed twice as many people as I
have, and he's been at it longer, too!"

When people so alike bicker like this in movies, they're usually about a
minute away from kissing.

~~~
ktsmith
Marc has already pointed out that he removed himself from the decision making
process regarding the divestiture of Skype and fully disclosed his conflict.
ebay held 30% to his 3% during all of this so Icahn's claims seem pretty
baseless and should be easily confirmed or denied by another member of the
ebay board with knowledge of the proceedings.

------
jashmenn
Can someone explain to me the significance of the animosity between Carl Icahn
and pmarca? There are half a dozen posts on pmarca's blog discussing how Icahn
is making claims against Andreessen. I understand these claims, but I don't
understand their significance.

I deeply respect pmarca but I can imagine that he, like any high visibility
person, has many detractors. What power does Carl Icahn have that warrants
such a strong response?

~~~
jkuria
Icahn called out his conflict of interest in Ebay:

[http://online.wsj.com/news/articles/SB1000142405270230407100...](http://online.wsj.com/news/articles/SB10001424052702304071004579409813180461206)

~~~
ktsmith
Andreessen responded:

[http://blog.pmarca.com/2014/03/03/my-statement-on-ebay-
direc...](http://blog.pmarca.com/2014/03/03/my-statement-on-ebay-director-
role-and-governance/)

------
taylorbuley
I submitted this under the permalink URL earlier in the day:
[https://news.ycombinator.com/item?id=7421591](https://news.ycombinator.com/item?id=7421591)

Can any mods delete my submission and update this URL to that URL? It seems
illadvised to have this item pointed at pmarca's blog homepage vs. the item
we're discussing.

------
wikiburner
I don't understand what eBay's problem is. I mean c'mon, Gordon Gekko was only
_partially_ based on Icahn.

------
drawkbox
If everyone was like Icahn, we'd already be through a few revolutions. He
likes to engineer market events just ask Apple. Like this article said, he
does this to the detriment of everyone around and destroys value. Marc creates
value and companies and Icahn from what I have seen previous and here, likes
to create money for himself out of destroying that value. When the world says
don't, he says Icahn.

------
gadders
Not sure that's the most sophisticated PR strategy. One post looks like a
rebuttal, 8 look like an obsession.

~~~
nostrademons
He's trying to create FUD here, not look good. As the incumbent, he has the
advantage; if all shareholders are paralyzed into inaction because all the
major players look like assholes, he wins. He only loses if a majority of EBay
shareholder votes believe that Icahn will generate shareholder value, hence he
wants to make abundantly clear that Icahn destroys shareholder value to enrich
himself.

------
hluska
With each volley that Icahn and Andreessen fire back and forth, I'm left more
humbled by how incredibly smart these two men are. I feel like I'm watching
master communicators slug it out and I'm learning an incredible amount from
the action.

------
r00fus
Carl Icahn _is_ the Cryptonomicon's Dentist. A wolf that ravages, feeds and
moves on.

------
nashashmi
What is it with pmarca? As a subscriber of his blog, he's been lambasting Carl
Icahn for awhile now. Don't get me wrong! I hate Carl Icahn, but pmarca's
critique is hard to get and overobsessive.

~~~
adventured
It's because it has gotten personal between Icahn and Andreessen. Icahn has
been specifically dragging Andreessen's character through the mud since it
became obvious he wasn't going to get his way on eBay.

------
jackgavigan
Marc's paying for too much attention to Icahn. He should have simply issued a
short statement refuting Icahn's allegations and laying out the facts, and
then ignored him, like one would a crazy homeless guy ranting on the street.

Instead, it's in danger of turning into a mud-slinging contest.

------
untog
Every single post in this blog seems to be about Carl Icahn.

------
gcb0
The article left me with lots ofdoubt... Take this sequence of events:

Bought 20% of company.

made it private.

Sold London route.

So, how can someone with 20% make a company private? And how can someone
having his shares bought back after company went private still command it to
sell anything?

Was he ceo all along?

~~~
Marazan
I don't know the details but from the description he'll have done through the
form of a leveraged buyout.

Icahn secures a loan from a bank (or group of banks/financiers - possibly even
one of his other companies, I don't know what the law is like in this regard
in America) to purchase enough shares to take the company private.

Here's the 'trick' though. That loan is not secured by Icahn, it is secured by
the company he has just "bought out" \- the repayments of the loan being
secured against the companies current capital assets and future profits. In
effect Icahn gets the company to take out a loan which he uses to take control
of the company.

Obviously there needs to be enough shareholders willing to sell for this to
work but if the leveraged buyout offers a great enough premium then they'll
normally find enough willing sellers.

------
erdle2
The sketchiest thing about Andreeson is that he sits on the board of directors
for HP... and at no point has he told investors that it's a rudderless shell
of it's former self with almost no hope.

------
metaphorm
andreesen and icahn deserve each other.

------
mattmaroon
I love Marc and understand he's upset about the accusations, but it's time to
move on. Nobody who knows anything about Marc takes them seriously. I'm
obviously not privy to what goes on in eBay's boardroom, but the notion of
Marc being some svengali forcing them to cede him 100s of millions is
blatantly ludicrous, not to mention insulting to the other board members. If I
were Marc (and it's probably much easier to say this since I'm not) I'd just
ignore.

------
rdl
I kind of find fault with pmarca recusing himself from the eBay board during
the skype deal in spite of his conflict of interest, as he's clearly 100x more
intelligent than anyone else on the eBay board. I'd rather have a smart guy
who has particular knowledge advocating for my interests, even if he has some
biases which he discloses, rather than some former CEOs of eBay (not exactly
winners there) or some big dumb fund people, which is what you're left with
otherwise.

------
nnq
Is there any positive perspective on this guy too? In this interview
([http://www.youtube.com/watch?v=CTIp9ebXAh0](http://www.youtube.com/watch?v=CTIp9ebXAh0))
he kind of makes sense with `restructure to concentrate on shareholder value`
and `restructure for short term or sure profits` line of thinking...

------
kumarski
I'd like to see Marc be a bit more vicious about this, starting with Herbalife
as the first target.

------
jroseattle
Dear Marc:

Who gives a rats ass what Carl Icahn thinks? Stop paying so much damn
attention to him.

You're leaving me the impression that what he is saying is actually
applicable. If it is, get to the point. Otherwise, move on....this story is
getting old.

------
nfm
Permalink: [http://blog.pmarca.com/2014/03/18/when-carl-icahn-ran-a-
comp...](http://blog.pmarca.com/2014/03/18/when-carl-icahn-ran-a-company-the-
story-of-twa/)

------
tomrod
I like this guy's writing. The multiple ellipses every 3 sentences bothers me.

------
whydo
I hope the folks at Apple are paying attention.

~~~
thematt
Why? I thought Icahn threw in the towel on that crusade.

------
chris_mahan
Maybe he should buy Microsoft.

------
GFK_of_xmaspast
If you want to see the face of capitalism, look to Carl Icahn.

~~~
pedalpete
That's not capitalism, that's greed. Sadly, many of the greedy are hiding
behind the banner of capitalism, but don't be confused.

~~~
GFK_of_xmaspast
It's exactly capitalism. Carl Icahn, capitalist, used capital to establish
control over TWA and, having done so, exercised his property rights in a way
to maximize profit and return.

~~~
pedalpete
I don't disagree that Carl Icahn is a capitalist, so are Warren Buffett and
Marc Andreesen (now).

Look at the definition of capitalism "an economic and political system in
which a country's trade and industry are controlled by private owners for
profit, rather than by the state."

Nowhere in the definition does it state that a capitalist must be a greedy a
__hole who destroys companies and the lives of employees in order to fill his
own pockets.

Sadly, we see too many examples of this, but it isn't capitalism, and we need
a better label for it, or we risk throwing the baby out with the bath water.

~~~
bitonomics
Agreed.

Capitalism gives people the ability to be driven by generally selfish factors,
but there is a line between selfish motivation and greed.

Unfortunately that line is more of a moral one which can make it harder to
define.

