THE RAID.(Biography)

Richard D. Parsons, who runs Time Warner, the world's largest media company, does not fit the C.E.O. stereotype. He has a scruffy beard. He is black. He hugs strangers, and believes that he can make just about anyone like him. So it was natural that when, in August, Parsons learned that Carl Icahn's hedge fund, Icahn Partners, had joined three others to acquire three-per-cent ownership of Time Warner, he called Icahn and asked if he could drop by. "It never hurts to show a guy some respect," Parsons said later. He knew that Icahn had made billions as a corporate raider in the eighties and had pioneered the art of "greenmail." (The raiders would buy a block of shares in a company and sell them back at a premium, in return for agreeing to drop a challenge to the company's management.) But Parsons, who once worked for Nelson A. Rockefeller, and who was the chairman of Rudolph Giuliani's 1993 mayoral campaign, also knew that this was as much a political campaign as a business battle.

On August 17th, Parsons walked from Time Warner's headquarters, at Columbus Circle, to Icahn's office, which is on the forty-seventh floor of the General Motors Building, three blocks away, on Fifth Avenue. They met for forty minutes, and both later described the meeting as "philosophical." Their only point of agreement was that Time Warner's stock, at about eighteen dollars per share, was undervalued. But Parsons believed that Time Warner's stock, like that of other "old media" companies, was depressed because the market was uncertain about their growth prospects in the digital age. Icahn believed that it was because Parsons is too "passive" as an executive.

Icahn made two proposals. He wanted to spin off Time Warner Cable into a separate company and sell shares to the public--to "unlock" shareholder value. (Earlier, Parsons had announced plans to sell sixteen per cent of the company's cable operations to the public, and to buy back five billion dollars' worth of shares.) Icahn wanted the company to buy back twenty billion dollars in shares, and said that the mechanism for the sale should be a "Dutch auction"--where the company invites shareholders to propose a selling price above the current stock price and then chooses the lowest bidders. This appeals to hedge funds, which tend to be short term and take at least a twenty-per-cent commission on clients' profits; Icahn, who said that his fund had paid an average price of seventeen dollars and twenty cents per share--and controlled at least thirteen million shares--stood to gain perhaps three dollars on each share he sold, plus his own fee, of twenty-five per cent.

Parsons saw this as greenmail, although he said of the meeting, "We parted amicably." Icahn was less diplomatic. "You say, 'Jesus, he's a nice guy,' " Icahn said. "But is he smart enough that he's not telling me anything, or does he not know anything?" He was certain of one thing about Parsons: "He doesn't want to give up his throne." Before the two men shook hands, Icahn issued an icy warning: "I can't be responsible if this gets ugly."

It did get ugly. Icahn eventually charged Parsons and Time Warner with mismanagement, called for the breakup of the company, and mounted a proxy battle, asking shareholders to remove Parsons and other members of the board. "I enjoy the war," Icahn told me in late January. "It's the greatest game in the world. It's like a poker game. Take Time Warner. I am on a battlefield against their best top lawyers, thirty P.R. guys are against me, and I'm here. I love being the underdog. Deep down--I know it sounds immodest, but I'm much better than them at this type of thing."

Although in the end Icahn failed in his bid, the market forces he represents--corporate raiders, or, in Icahn's preferred term, "shareholder activists"--have staged a comeback, led by Icahn, Nelson Peltz, Kirk Kerkorian, and some of the investors who were once aligned with the defunct investment bank Drexel Burnham Lambert and its convicted junk-bond specialist, Michael Milken. Their financing often comes not from junk bonds, the weapon of the eighties, but from an enormous pool of capital--more than a trillion dollars--controlled by hedge funds and equity funds that tend to look for quick returns. These investors usually seek growth stocks, or companies whose costs they can radically cut--not visible media companies, like Time Warner, News Corp., Viacom, and Disney, whose stock has stalled or dropped in recent years.

Time Warner, which Parsons has led since May, 2002, has suffered more than most. In January, 2001, when the merger of Time Warner and AOL, which Parsons helped orchestrate, was completed, the stock value of the combined companies was about two hundred billion dollars. Executives from the new AOL Time Warner, as it was renamed, vowed that the company's size would spur new "synergies," and that it would realize extraordinary profit margins of thirty per cent and double its revenues every three years or so. The company fell far short of these projections, and Wall Street reacted savagely. By the time the company's chairman, Steve Case, and its C.E.O., Gerald Levin--who became pariahs to shareholders and, eventually, within Time Warner--were replaced by Parsons, the company had lost a hundred and twenty-five billion dollars' worth of value; the Times called it "the worst merger in business history," and it was hard to disagree.