Time Warner may be interested in selling its equity stake in a subsidiary unit of Time Warner Cable, according to a filing with the Securities and Exchange Commission.
A filing by Time Warner Cable reported that subsidiary TW NY Holding might buy out a “significant portion” of the 12.43% stake Time Warner holds in it. The stake was assessed at $2.9 billion in April 2005, according to the company.
On Sept. 13, Time Warner Cable’s board of directors authorized a special committee to consider any proposal Time Warner might make, if one is made. The company said that if an agreement was reached on a transaction, it would fund it by tapping its existing bank lines or selling new debt in the capital markets.
Sanford C. Bernstein analyst Craig Moffett said the move would be an answer to those questioning the company about how it would use is excess cash flow. Investors have been looking for some return of cash and hoped to get it through a dividend or a share buyback. But a buyback is impractical because of Time Warner Cable’s limited float of public shares of 156 million, making the purchase of Time Warner’s holding of TW NY “the next-best-option,” according to Moffett.
Based on Bernstein’s $3.6 billion valuation of the Time Warner stake made in March, a transaction in which the position was fully redeemed will result in a 10.1% increase in public effective ownership to 15.96% from 14.5%.