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Time Warner Cable Approves Spinoff

Time Warner to Receive $9.25B Cash Payment from Cable Operator 5/21/2008 08:20:00 AM Eastern

Warner Bros. parent Time Warner will receive a $9.25 billion cash payment from 84%-owned Time Warner Cable under a spinoff plan the large MSO approved late Tuesday.

Jeff Bewkes

Once completed, the transaction will position the separated companies to use their own stocks to finance acquisitions because they are more streamlined with narrower media-sector focuses.

The amicable separation is scheduled to take place in the fourth quarter, following through on an earlier plan by new Time Warner CEO president Jeff Bewkes to streamline the sprawling entertainment/media conglomerate by exiting the cable-system business. Bewkes-led Time Warner can use the cash it gets to pay down debt or make acquisitions, such as building its digital-media businesses.

Under the spinoff plan approved by Time Warner Cable’s board, the second-largest U.S. MSO with 14.7 million customers will make a cash $10.27-per-share dividend payment to shareholders, which totals $10.9 billion. Time Warner gets the $9.25 billion proportional slice of that. Time Warner Cable has a $13 billion net debt load already and has set up a two-year $9 billion bridge facility from banks to fund the cash dividend.

“In a single transaction, we increase our strategic and financial flexibility, simplify our capital structure, enhance the public float and liquidity of our stock and return substantial capital to our stockholders,” Time Warner Cable president and CEO Glenn Britt said in a statement.

“Importantly, we expect to accomplish all of this while maintaining solid investment-grade credit ratings,” he added. “Paying a sizable, one-time dividend is a reflection of our continued confidence in our growth prospects.”

In recent weeks, cable stocks have rallied on Wall Street due to their ability to grow significantly in high profit-margin voice and broadband, and also to beat back rivals such as telcos now offering video services.

The spinoff will take place in three steps to minimize taxes, assuming Internal Revenue Service and local-cable-franchise approvals. That process will increase Time Warner’s stake to 85.2% from 84% by including a small cable stake not already owned by Time Warner Cable. After the cash dividend is paid, Time Warner will distribute the stock it holds in the cable company to its own shareholders.

“This is the right step for Time Warner and Time Warner Cable stockholders,” Bewkes said in a statement. “After the transaction, each company will have greater strategic, financial and operational flexibility and will be better-positioned to compete. Separating the two companies also will help their management teams to focus on realizing the full potential of the respective businesses and will provide investors with greater choice in how they own this portfolio of assets.”

Since taking the helm at the start of the year, Bewkes has been paring operations to cut costs, such as downsizing and merging its

New Line Cinema

film unit with its major studio operation. Perhaps Bewkes’ biggest decision going forward is what to do with its

AOL

Web unit, which can become a hub of company digital operations, be sold or be spun off to shareholders as an independent company like Time Warner Cable.

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