Time Warner Hikes Stock Buyback to $12.5B

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Bowing to pressure from activist investor Carl Icahn, Time Warner substantially increased its stock buyback plan, but the company is not going as far as Icahn wants.

Time Warner’s board approved a plan to buy back $12.5 billion worth of the company’s shares over 21 months. That’s up from $5 billion the company budgeted in August.

That plan is still not as drastic as the one sought by Icahn, who has a assembled an investor group that controls $2.3 billion worth of Time Warner shares. Since it controls that investment largely through options, the group has been able to flex its muscle with far less money than if it actually owned the shares. Icahn wants Time Warner to borrow $20 billion against its cable company, use the cash for a giant, quick stock repurchase, then spin the cable unit off on its own.

Such a “Dutch auction” buyback would create an immediate pop and allow them to cash in. A longer process won’t generate such a sudden kick.

The company also posted mixed third quarter results. Overall, the company’s TV network unit had a great quarter, with revenue increasing 10% and operating income jumping 21%. But that’s driven largely by a one-time kick from HBO’s sale of Sex and The City into broadcast syndication. The networks’ core business – subscription fees and ad sales – was weak.

Time Warner Cable was uniformly strong, with revenues increasing 13% and operating income jumping 17%. A major driver is the division’s zooming cable telephone business.

But Time Warner was pulled back by its Warner Bros. film unit, where sales grew 6% but operating income plunged 30%. That’s partly because last year’s results include syndication revenues from the final seasons of Friends and The Drew Carey Show.

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