Time Warner Inc. said Wednesday it would completely split off its cable TV business, giving the media conglomerate a $9.25 billion windfall and allowing it to focus on cable network, entertainment and publishing operations.
The separation of Time Warner Cable Inc. gets Time Warner out of the media distribution business, something investors had been seeking. The company announced its decision to split up last month and said Wednesday that the boards of the two companies had agreed to financial terms.
“Time Warner is a company in the midst of a sweeping transformation,” said Matt Kaufler, a portfolio manager at Clover Capital Management, which owns 1.7 million Time Warner shares. “There will be more steps before year-end. This is headed toward being a pure content company.”
Time Warner Cable, with about 13.3 million video subscribers, is the second-largest cable provider in the country, after Comcast Corp. It has been a public company for more than a year, but Time Warner had held on to an 84 percent stake.
Jeff Bewkes, Time Warner’s chief executive, told analysts on a conference call that Time Warner Cable had grown into more of a “full-fledged telecommunications business” with expansions into high-speed Internet access and digital phone service, with different needs that “don’t fit as well” with Time Warner’s traditional media businesses.
The split-off calls for Time Warner Cable paying a total dividend of $10.27 per share, or $10.9 billion to all shareholders, of which parent company Time Warner will receive $9.25 billion. Time Warner Cable will fund the dividend with its existing credit facility and a $9 billion, two-year bridge loan from a syndicate of banks, raising its total debt load to $24.2 billion.
“The dividend is larger than expected,” said Chris Marangi, a fund manager at Gamco Investors Inc., which owns 10.9 million Time Warner shares.
Time Warner said it would distribute the proceeds to its shareholders in a tax-efficient manner to be determined shortly before the deal closes, which is expected in the fourth quarter. The split still needs a favorable tax ruling from the IRS as well as other regulatory approvals and local franchise clearances.
Once Time Warner Cable is split off, Time Warner will be an entertainment-focused company centered on the Warner Bros. movie and TV production studio, the Time Inc. magazine publishing group and a large portfolio of cable networks that includes HBO, CNN, TBS and TNT.
The next strategic imperative for Time Warner and Bewkes, who became CEO at the beginning of the year, is to figure out what to do with its AOL division, which is trying to remake itself as an online advertising company as revenues from its legacy dial-up Internet access service rapidly dwindle.
