Tuesday, July 17, 2007

Time Warner May Split Off Cable, AOL Units, Pali Says

Time Warner May Split Off Cable, AOL Units, Pali Says
By Gillian Wee

July 16 (Bloomberg) -- Time Warner Inc., the world's biggest media company, may split off or sell more units and buy back additional shares, pushing the stock price to $25, according to a report today by Pali Capital Inc.

Richard Greenfield, a New York-based analyst at Pali, raised his rating on the shares to ``buy'' from ``neutral,'' saying Time Warner may sell its cable unit, and spin off or sell the AOL Internet division.

Time Warner's board should act over the next year to reshape the company, including disposing of its publishing unit, Time Inc., Greenfield wrote. Billionaire investor Carl Icahn last year unsuccessfully pressured the company to break itself up. He managed to push Time Warner to repurchase more stock and pledge to cut costs by $1 billion over two years.

``The synergy between Time Warner's divisions is limited at best; sometimes even creating the risk to destroying value at one division to help another,'' Greenfield wrote. ``Its complexity has, without doubt, become a liability in the public market.''

Keith Cocozza, a Time Warner spokesman, didn't have an immediate comment.

Shares of New York-based Time Warner rose 12 cents to $20.98 at 12:35 p.m. in New York Stock Exchange composite trading. They have fallen 4.2 percent this year before today.

Share Buyback

Time Warner may discuss the future of the units at a board meeting later this month, Greenfield wrote. The company may buy back at least $14 billion of stock in the next 18 months, he said.

Since defeating Icahn's campaign in February last year, Parsons has cut jobs and agreed to sell more than $4 billion of assets, including AOL Web access units in Europe. Parsons also gave in to Icahn's demand to boost a share repurchase plan to $20 billion. That plan was completed in May.

What Time Warner decides to do with cable and AOL might also be decided by Jeff Bewkes, who may be planning to simplify the company, Greenfield said. Bewkes was effectively named heir apparent after being promoted to president by Chief Executive Officer Richard Parsons in January. Parsons, whose contract expires in May 2008, said last month he will decide over the next year or two when to step down.

Even though Time Warner Cable is a separate public company, the fact that it's 86 percent-owned by Time Warner prevents it from focusing on businesses that would compete with its parent, such as a major Internet portal strategy or national cable networks, Greenfield said.

AOL is also faltering, as its target audience will continue to shrink and it hasn't offered innovative new products, Greenfield said.

Parsons, in an interview last week, said it will take two more quarters for AOL to turn around, as its user base is going up for the first time in five years. Time Warner also wants to be part of the consolidation in the cable industry, and such acquisitions depend on the families that control Cablevision Systems Corp. and Cox Communications Inc. he said.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net .

Last Updated: July 16, 2007 12:36 EDT

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