Icahn Vs. R2 Investments

What happens when one activist is pitted against another?
We might just find out at XO Holdings Inc., a Reston, Va.-based telecommunications company that raider-turned-activist Carl Icahn took control of in 2003. On Thursday, an activist group of minority investors including R2 Investments LDC sent a letter to three directors on XO's board expressing concern about their understanding that the company is pursuing new financing alternatives. R2 Investments has a 6.6% XO stake.
"Should any of these 'new financing alternatives' being considered include refinancing the debt facility and the preferred equity owned by affiliates of XO's majority stockholder and chairman, Carl Icahn, we write to place you on notice that R2 will challenge any proposed transaction that it perceives to be unfair to XO's minority shareholders or otherwise disadvantageous to XO, and will seek to hold you liable for any such breach of your fiduciary duty," R2 Investments wrote in the letter, which was attached to a Securities and Exchange Commission filing. "Based on your prior actions, we are truly skeptical that you or any member of the current board of directors can act as independent advocates of any shareholder other than Carl Icahn."
The activist investors lashed out at Icahn for bypassing the "most attractive credit market in history" and waiting until the "credit market turmoil" to consider refinancing options. They indicated that he may be seeking to increase his percentage of ownership at the expense of other shareholders. "Clearly, it will be incredibly expensive to raise money now as compared to one year ago -- thereby allowing Mr. Icahn the ability to massively dilute other shareholders should he conveniently be the only source of available financing," they wrote. "This will prove to just be a poorly disguised means of stealing value from the minority shareholders and handing it to Mr. Icahn."
Taking their attack from Icahn's governance playbook, R2 Investments pointed out that the majority of XO's directors are employed by Icahn and "clearly cannot be relied upon to protect the interests of the minority shareholders."
And this is not the first time Icahn has found himself up against the interest of other activist investors. Auto parts and car interior maker Lear Corp.'s shareholders rejected a buyout offer from Icahn in 2007, although he remains the Southfield, Mich.-based company's biggest stockholder. Activist investor Pzena Investment Management LLC launched a successful activist campaign to convince other investors to block Icahn's bid. - Ron Orol