Wednesday, May 16, 2007

Time to Think (Again) About Selling Time Inc.?

"All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near."
Sun Tzu

Time to Think (Again) About Selling Time Inc.?
The New York Times think-about-selling-time-inc/

Time Warner may have fended off Carl Icahn's calls for a four-way breakup of the company, but that doesn't mean the media conglomerate isn't still considering some major changes. An analyst at Bear Stearns thinks a sale of Time Inc., the world's largest magazine company, is high on the list of restructuring moves under consideration.

The analyst, Spencer Wang, does not necessarily expect Time Warner to unload the business anytime soon - he actually thinks it will deal with its AOL unit first - but he suggested in a report published Wednesday that a Time-less Time Warner could eventually become reality. He described the magazine unit "the least-attractive strategic fit" with the rest of what he calls Time Warner's "video-centric" media offerings.

Slate's Daniel Gross floated the idea of a Time Inc. sale way back in August 2006. At the time, Mr. Gross argued that the magazine unit, whose readers are aging or getting picked off by the Internet, "can make eminently respectable profits for some time," but "won't provide the kind of growth demanded by public shareholders."

In the last few weeks, the media deal-making landscape has heated up. Thomson agreed Tuesday to buy Reuters for $17 billion, and News Corporation recently made a $5 billion for Dow Jones, the publisher of The Wall Street Journal.

But how to get rid of Time?

Mr. Wang sees two likely options: A leveraged spinoff, which breaks the unit off into a new, publicly traded entity, or a straight-up sale. Though a spinoff would carry less of a tax bite, a sale could be the better option, considering the price that Mr. Wang thinks the unit might fetch in the private market.

Time Inc., which, in addition to its flagship magazine, includes titles such as People and Sports Illustrated, is expected to book revenue of $5.1 billion this year, with Ebitda of about $1.1 billion. That strong cash flow, plus the relatively low amount of capital required to run a magazine business, could make it a tempting target for a private equity fund, the analyst suggested. (Others have previously suggested that Carlyle Group could be persuaded to take a look at Time if it came up for sale, seeing as Norman Pearlstine, Time's former editor in chief, is the buyout firm's senior adviser for media and entertainment acquisitions.)

How much would Time Inc. be worth? Mr. Wang estimated that a sale could bring in after-tax proceeds of between $7.6 billion and $8.9 billion for Time Warner.

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