Here are the guts of the deal:
- Time Warner exchanges its 12.4% interest in TW NY Cable Holding Inc., a subsidiary of Time Warner Cable, for 80 million newly issued shares of Time Warner Cable's Class A common stock, increasing Time Warner's ownership stake in Time Warner Cable's common stock from 84% to 85.2%;
- Time Warner Cable declares a one-time dividend of $10.27 per share for a total of about $10.9 billion payable immediately prior to completion of the separation;
- Time Warner receives $9.25 billion from this dividend;
- Time Warner Cable expects to fund the one-time dividend through its existing revolving credit facility and $9 billion from a new, committed two-year bridge term financing from a syndicate of banks;
- Time Warner converts its Time Warner Cable Class B common shares (each Class B common share has the voting power equivalent to 10 Class A common shares) into Time Warner Cable common shares on a one-for-one basis in a recapitalization that results in Time Warner Cable having one class of common stock;
- Time Warner will distribute its entire ownership stake in Time Warner Cable to Time Warner stockholders in a tax-efficient manner; the exact form of the distribution will be determined shortly before the closing of the transaction, based on market conditions.
This should be the start of that value unlock, and this will also clarify the balance sheets of both companies.
In a recent newsletter article, I generated an $18 scenario with a $20 target on a slightly enhanced basis. In early to mid 2009 as the economic slowdown should have been worked through, I even see a $22 to $24 upside scenario.
Jon Ogg is the editor of 24/7 Wall St.'s Special Situation newsletter.
