Bewkes Looks to Shuffle Time Warner’s Businesses

CEO Feels that Time Warner Cable Is Undervalued, Considering Range of Options

By Brent Felgner -- Broadcasting & Cable, 3/11/2008 5:19:00 PM

Two months into his tenure as Time Warner’s CEO, Jeff Bewkes has begun prodding at every corner of the media giant’s business -- particularly Time Warner Cable -- in search of better returns and higher growth.

He told investors at the Bear Stearns media conference Tuesday that this will likely be accomplished through a spinoff or some other restructuring of the cable company.

Time Warner Cable is 87%-owned by Time Warner and contributes about 45% to its EBITDA (earnings before interest, taxes, debt and amortization). Time Warner would possibly emerge a smaller, content-only company on the other side.

“It’s not that we want to be smaller -- we have no problem with that,” said Bewkes, who added CEO responsibilities in January to his job as president. “It doesn’t matter if Time Warner as a conglomerate of holdings is larger or smaller -- it just matters if the return on capital is higher.”

Bewkes said Time Warner Cable is undervalued and there are a range of options to consider over the next several months. He added that talks have begun between the companies’ two boards, saying, “It’s just a question of whether the value of it, and even some of the strategic options open to it in terms of investments, scale, a possible combination of the cable footprint with other things, might be more easily accomplished, more easily valued, with a better financial structure and return architecture, if it was a separate piece of paper you owned.”

Admittedly, the cable company has the potential to drive increasing cash flow over the next several years. Bewkes emphasized that Time Warner is not seeking to sell Time Warner Cable -- merely to change its structure to release value and permit it to be leveraged differently with a better capital structure.

He’s also taking hard looks at the company’s AOL business, particularly in light of the possible hookup between Microsoft and Yahoo, which, he acknowledged, would increase AOL’s competitive profile. AOL has been fighting hits to its ad growth and the subscription side of the business has matured.

Bewkes said Time Warner is looking to “bulk up” in all of its business segments, at the same time it cuts expenses by 15%.

“But aren’t the content businesses slow-growth, mature businesses?,” one investor asked.

“I’ve been doing this for 30 years and I don’t think content businesses on planet Earth are ever mature,” Bewkes replied. “You just have to figure out how to take these incredible brands -- People, HBO, CNN -- and make them growth vehicles in a new world, in a new international setting, in a new digital-empowered planet.”