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.
As soon as Richard Parsons gave up his CEO role in January, remaining chairman of Time Warner Inc. (NYSE: TWX), the smart money bet that his tenure would be short-lived. After all, he had turned over the fun part of the job to Jeffrey Bewkes.
Today, at the annual shareholder meeting, Parsons said he would likely give up his role as chairman after this year. This will mean Bewkes gets the chairman title affixed to his CEO tag. In fact, his contract stipulates being able to become chairman.
This is more than a title change. It will consolidate the decision-making power and the public's perception of who is in charge with Bewkes. It may even allow Bewkes to more expeditiously get Time Warner Cable Inc. (NYSE: TWC) out of the structure.
For Parsons, it will mean a fresh start. He has long been thought of as a candidate for Mayor in New York City. Handing the chairmanship of Time Warner over to Bewkes would allow Parsons to pursue that.
Time Warner Inc. (NYSE: TWX) hit a new 52-week low on Friday and again this morning. Shares traded as low as $13.65 today right after the open. This afternoon, shares are back up around $13.90, but that is just the level of last Friday's low. Since last Monday, shares have dropped from $14.84. At the beginning of the year, share price sat at $16.51. The high in 2007 was $21.97.
If you look at the current situation at Time Warner compared to other media stocks and other cable stocks, the one-third loss in share price from last year looks systemic to the industry rather than symptomatic of problems at TWX.
In other words, the market and economic trends seem more of the problem plaguing the shares than the actual strategy -- at least in recent weeks. If you look at the last decade, you get a different picture. But here I'm writing about the recent weakness in the stock.
For one thing -- the company is no longer spending billions to repurchase stock. In this environment it shouldn't. Media is being affected by a slowdown in spending and Time Warner will need the cash and the stock for strategic moves.
Ultimately, the value of TWX is going to boil down to two issues: What will the parent do with its stake in Time Warner Cable, Inc. (NYSE: TWC)? It looks like Bewkes is going to unlock more of the underlying value in cable. What is going to happen to AOL? So far, it looks like the content side and advertising side are both going to stay with the parent and the dial-up and access side of the business will be sold off.
I studied a longer-term chart and this last drop to under $15 has progressed to where shares are at four-year lows. Back in 2002 to 2003, shares traded under $11.
Today's economy is still weakening and the current corporate desire to unload billions of dollars in assets is far different than we were seeing in early 2007 and 2006. Time Warner shareholders saw past gains from cost cuts and new efficiencies. But the rest will have to come from solid business decisions and strong leadership.
It is no secret that AOL has been under the microscope of Wall Street, Main Street, and even Silicon Valley. There has been growing talk that a deal could be in the air, and talk may ultimately lead to reality. The New York Times notes that Time Warner Inc.'s (NYSE: TWX) CEO Jeff Bewkes may be open to a deal or "whatever configuration makes it the strongest and the most valuable."
AOL's primary strategy is to expand its advertising on Platform A, which is a combination of advertising and technology companies that AOL has purchased over the years. Executives see the expansion of their advertising network as the only way to compete and have discussed spinning off the dial-up portion of the business.
Two years ago, Time Warner discussed a merger with AOL and Microsoft Corp. (NASDAQ: MSFT) for its online operation and has recently explored a potential deal of some sort with Yahoo! Inc. (NASDAQ: YHOO). Keep in mind, Google Inc. (NASDAQ: GOOG) owns a 5% stake in AOL, so the world can still change rapidly.
Time Warner Inc. (NYSE: TWX) is making all sorts of moves to cut costs here and there on a selective basis. The media conglomerate plans to consolidate its movie studios by absorbing New Line Cinema into Time Warner Entertainment.
The move will cut costs and increase profitability, as well as give New Line access to Time Warner's international and digital distribution contracts. If you have been following the transition, this is the first formal unit consolidation restructuring by new CEO Jeff Bewkes in an attempt to boost Time Warner's profitability and ultimately the share price.
New Line has distributed blockbusters such as The Lord of the Rings and has Sex and the City: The Movie and The Hobbit set for release. This move will cause some Hollywood pain initially, but ultimately the need for multiple studios under a company that already is a conglomerate seems unnecessary. New Line will still operate somewhat differently, but as more of a subsidiary.
Time Warner stock was down 16 cents in mid-morning trading to $15.86 in a very weak stock market. The 52-week range is $14.64 to $21.97.
You can read a summary of the Time Warner Inc. (NYSE: TWX) earning results here; live blogging below is for the data not discussed in the press release and the Q&A session from Wall Street analysts.
Total revenues were $11.676 billion and EPS was $0.24 on a normalized basis, and free cash flow was $3.971 billion for the quarter. Time Warner listed its net debt at $35.3 billion, and it spent roughly $2.2 billion of its $5 billion for share buybacks since August 2007. The company also reaffirmed EPS targets at $1.07 with OIBDA growth in mid to high-teens from a base of $11 billion.
Oddly enough, AOL showed $635 million in subscription revenues. That is down 56% from Q3 2006, but that is still a huge number considering the access business has been sold off. So some people are still insisting on keeping their dial-up accounts even though they can get most services free besides the web access. Advertising revenues were up 13% to $540 million. Domestic ad revenues on an ex-TAC (traffic acquisition costs) basis were $330 million; unique monthly visitors were 113 million with an average ex-TAC revenue per user of $2.92.
Chairman Dick Parsons began the call, Wayne Pace is making comments after, then Jeff Bewkes will take over.
Honestly break up is really the most sensible path for Time Warner since Wall Street is clearly not embracing the media conglomerate model right now. TWX could make a case that its diversification provides safety if the economy softens further, but investors aren't buying it. So far today, the stock is at $17.80, losing another 1%.
Here are a few points from Faber's report:
Time Warner Cable Inc. (NYSE: TWC): Now a portion of Time Warner's stake trades separately. But the mother ship could spin off 85% of the unit and offer TWX shareholders an opportunity to exchange some of their shares for Time Warner Cable shares.
Today Time Warner Inc. (NYSE:TWX) Chief Operating Officer Jeffrey Bewkes made some interesting comments about Time Warner Cable at the UBS media and communications conference in New York City. You can link to the conference schedule here. Bewkes said the company would probably not sell more shares in 2007 after it spun off the 16% interest in Time Warner Cable via an initial public offering as part of the Adelphia acquisition terms.
This isn't all that was said as part of Q&A, but there is a reason for this. What Time Warner could ultimately do here is bury the hatchet on this mandatory cash-out for the Adelphia creditors. In truth the "TWC" shares are really going to be a minority tracking stock, and ultimately that portion of the float will have no vote as TWX is operating it under an SEC filing as "majority interest" or "controlled company" status. So what I think the company is likely to do here is look at ways of reacquiring the company. There are issues that prevent it from just arbitrarily going out and acquiring TWC back, but the key word is "arbitrarily." It can be negotiated. It can be wiggled or wedged. So it can be done.
TWX doesn't seem all that crazy about losing control and power in "TWC" and who could blame them? It is the crown jewel and the best thing they have going. Bewkes also said Time Warner would keep its long-term options open on assets like AOL, but the upside is great right now.
The Street has been selling the notion to companies that "break-ups" and "focusing on core operation" are the paths to unlocking shareholder value and rewarding shareholders. Sometimes that is the case, but not here. Wall Street is selling this notion for fee generation, and don't be fooled into thinking it is more.
The argument can be made that General Electric Company (NYSE:GE) would do better if its divisions were broken up into independent operations. But Time Warner doesn't build refrigerators and lease out airplane engines and service contracts.
Earlier this week, Barron's ran a story titled "Time Warner Can Get Out of Neutral" (subscription required). The article reviewed Jeff Bewkes' presentation at a Goldman Sachs conference, but didn't really give much new information that we havn't discussed here already. But it does make me think that Time Warner Inc. (NYSE: TWX) is undervalued relative to its peers.
The article says that at $17.60 the stock is only up 5.7% over the last two-years while News Corp (NWS) is up 20.2%, Disney (DIS) is up 30.8%, and CBS (CBS) is now up 8.6% over the same time. We have tossed out CBS as it is too focused to compare. That essentially leaves only News Corp (NES) and Disney (DIS) to compare to TWX.
TWX trades at 7.3 times next year's operating earnings, which is pretty hard to swallow in the midst of Adelphia closing, the magazine units selling off, AOL Europe's announced sales, and the spin-off of Time Warner Cable. The industry average is said to be nine times estimates, but it may not even be fair to use the status quo numbers of a 7.3 multiple. It could be far better.
TWX has a higher dividend yield as well at 1.3% compared to Disney's (DIS) dividend which could be a benchmark at 0.9%. The price to an implied book value is also only listed as 1.21 compared to just north of 2.0 for both DIS and NWS. You can make book values show almost whatever you want and we have our own way of picking apart balance sheets, but that is a huge discrepancy between TWX and the others.
This strength is key today, because this move not only took TWX above the 200-day moving average at $17.14. It launched it past that level. TWX shares have not been above the 200-day moving average since first crossing it in February, 2006, and they only remained there for about three weeks. The company barely even sold off on Yahoo! (YHOO) warning of a possible advertising revenue shortfall in certain areas.
TWX volume was nearly double its normal volume, with 38.75 million shares trading hands. It even traded quite a bit in its call options activity compared to recent weeks. As of the last 15 minutes of the day TWX saw its OCT calls trade about 9,000 contracts and saw the NOV Calls trade almost 7,000 contracts.
Just last week, Cramer issued his BUY recommendation on September 13 when the shares were around $17. That call is looking better almost by each day.
Jeffrey Bewkes, COO & President of Time Warner Inc. (NYSE: TWX), gave a presentation today at Goldman Sachs' Communacopia conference in New York City. Perhaps the most important thing to take away from the entire presentation is that Time Warner's AOL is seeing continued usage increases in its free AOL services. The company last week communicated at a Merrill Lynch conference the same "perceived" message, but this is now one week after that. AOL has only just recently offered for free services, such as email, which were previously available only to paid members.
Bewkes claimed that the company was seeing migration away from AOL because subscribers wanted to go to broadband and didn't want to pay extra for AOL -- not because they didn't like the service. The new free AOL based will make most of its revenue on advertising. If the company is seeing more usage, that will grow revenues from advertising.
Bewkes also expressed confidence about the current and future performance of the company's cable systems and cable network units.
As this was being written a CNNMoney.com piece stated, "Wall Street has been concerned about the steady decline in sales and operating profits at AOL as well as the sluggish performance in Time Warner's magazine and movie studio businesses."
While that WAS true, the company is really making the necessary steps to remedy the situation. The cable operations seem to be cruising quite well from an outsider viewpoint. They have entered pacts to sell AOL Germany and AOL France and a pact for AOL UK should be coming in short order. The sluggish magazine performance is going to be rectified at least somewhat with the sale of some of its non-core magazines so it can be more focused. Movie studio operations come and go, and the real issue may be that there hasn't been a "Lord of the Rings" packaged hit-fest more than anything.
This may have become a moot point since Yahoo! (YHOO) has commented at the Goldman Sachs conference that a slowdown in ad revenues from financial and auto companies may put the previous revenue targets at the lower-end of prior estimates. Yahoo!'s CFO has said it is still too soon to tell if this trend is going to go beyond financial and auto companies.
Time Warner (TWX) is now above its 200-day moving average of $17.14. TWX closed today at $17.39, up 25 cents on a day YHOO and other digital stocks got hammered.
The New York Post reports that plans to make AOL email addresses free for high-speed customers are only the tip of the iceberg; in fact, they say, the Time Warner board is considering much more radical moves. Carl Icahn wanted to spin off underperforming units? Well, then, why not give shareholders what they want?!?
The plan the Post discusses seems much less radical than any Icahn could truly get excited about: they say Time Warner has been talking to the biggie media and internet companies about partnerships, and if that doesn't work out, the board might consider spinning off 20% of AOL to shareholders.
What is 20% of AOL worth? And which 20% might be released into the wilds? This seems an odd proposal, I'd be interested to hear any scuttlebutt you Time Warner watchers have heard on this rumored deal. But even more interesting is the balance of power between Time Warner president Jeffrey Bewkes -- perhaps heir to the Time Warner throne -- and AOL CEO Jon Miller, who the Post says is "playing second fiddle" to Bewkes in the upcoming board meeting discussions about AOL. Will Miller be given the axe, the Post intimates slyly? I hardly even dare ask the question.
Jeffrey Bewkes, president of Time Warner, told his Sports Illustrated magazine division to go take a flying leap when they wanted to partner with AOL's sports channel to build a giant sports web site. Synergies, he told the Wall Street Journal, are bullshit.
As someone who made part of her career not just believing in synergies but putting solid numerical values to them and offering them up, like holy sacraments of PowerPoint, to the strategists at gigantic corporations: this is a hard pill to swallow. And though I see it not working more often than not, I also see so many areas -- yes, within Time Warner, where I work today -- where it does work. Heck, everyday I make my bucks on the back of the synergy.
But instead of calling them "synergies," now, Time Warner is calling them "adjacencies." Sumner Redstone split up Viacom and CBS because the "clout" he was supposed to get from his company's huge size "got us nowhere." Is the day of the synergy over and done with?
As soon as Richard Parsons gave up his CEO role in January, remaining chairman of 
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