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Time Warner Will Split AOL
Thursday, February 7, 2008
NEW YORK -- Time Warner Inc.'s new CEO Jeff Bewkes laid out his vision for
changes at the media conglomerate Wednesday, including dividing AOL's online
access and advertising businesses and possibly spinning off the rest of the
company's cable division.
Investors have looked to Bewkes, who took over in January, to dramatically
restructure the company in hopes of reviving shares that have slumped 29
percent over the past 12 months.
Investors liked what they heard. Shares rose 31 cents, or 2 percent, to
$15.71.
Bewkes was speaking with analysts about the company's fourth-quarter
earnings, which fell 41 percent following a big gain last year from the sale
of AOL's European online access business.
Without the year-ago gains and other one-time effects, adjusted profits rose
17 percent on stronger results for cable TV and movies. Time Warner said it
expected that growth to slow this year to a range of 7 percent to 9 percent.
Time Warner owns 84 percent of Time Warner Cable and may now have more
options for spinning off the division tax free. However it's not clear that
a complete spinoff will happen, particularly given a recent sell-off that
has hurt the value of all cable stocks.
Bewkes said the company was working to separate AOL's growing online
advertising-based business from the dial-up access business, which is in
rapid decline as people shift to high-speed Internet service from cable TV
and phone companies.
That could make AOL more attractive to potential bidders. However, those
prospects became murkier last week when Microsoft Corp. made an unsolicited
bid for Yahoo Inc. That would not only eliminate two likely bidders for AOL,
but create a major online advertising power.
Google Inc. owns 5 percent of AOL and has a right to trigger an IPO of its
stake in July. Google paid $1 billion in late 2005, valuing all of AOL at
$20 billion. AOL's value today is far less certain.
A spinoff or sale of AOL, should it occur, would mark a sea change from
2000, when Time Warner agreed to be purchased by the Internet company then
known as America Online at the top of the dot-com bubble. The deal turned
out to be disastrous, leading to massive write-downs and settlements with
shareholders and regulators over accounting improprieties.
Time Warner's cable division is the largest part of Time Warner, where many
of the other assets are focused on video entertainment, including Warner
Bros., New Line Cinema and a group of cable networks including HBO, CNN and
TBS. Time Warner also owns Time Inc.
Bewkes noted that Time Warner Cable has different financial needs than Time
Warner's other businesses, and may be better off on its own. Cable companies
tend to be able to support far larger amounts of debt than other companies,
given their consistent cash flows, and they also have needs for significant
investments to build infrastructure.
Time Warner reported net income of $1.03 billion or 28 cents per share,
versus $1.75 billion or 44 cents per share in the same period a year ago.
Without one-time items, the earnings were 29 cents per share, in line with
estimates of analysts polled by Thomson Financial. Profits were 23 cents per
share a year ago.
Revenues rose 2 percent to $12.64 billion, close to the $12.65 billion
expected by analysts.
Earnings from Time Warner Cable rose 19 percent on a 12 percent gain in
revenues, as the company continued to digest cable systems from Adelphia
Communications Corp.
Despite growth in premium cable services like digital phone and high-speed
Internet access, investors are worried about competition from phone
companies offering video services. Time Warner's cable unit reported a
decline of 50,000 basic video subscribers in the fourth quarter.
Time Warner's movie and TV production business had a strong quarter, with
earnings up 46 percent on a 13 percent gain in revenue. Will Smith's movie
"I Am Legend" set a record for a December film opening.
AOL posted an earnings increase of 29 percent despite a 32 percent decline
in revenues, as the company shed another 740,000 dial-up access subscribers.
The current total of 9.3 million subscribers is down 3.8 million from last
year. AOL sold its Internet access businesses in the United Kingdom and
France for a pretax gain of $769 million last year.
Time Warner expects to report full-year earnings for 2008 in the range of
$1.07 per share to $1.11 per share. Analysts polled by Thomson had been
expecting $1.11 per share.
For all of 2007, Time Warner reported income of $4.39 billion or $1.17 per
share, versus $6.55 billion or $1.55 per share in 2006. Revenues rose 6
percent to $46.48 billion.
Time Warner Will Split AOL
Thursday, February 7, 2008
NEW YORK -- Time Warner Inc.'s new CEO Jeff Bewkes laid out his vision for
changes at the media conglomerate Wednesday, including dividing AOL's online
access and advertising businesses and possibly spinning off the rest of the
company's cable division.
Investors have looked to Bewkes, who took over in January, to dramatically
restructure the company in hopes of reviving shares that have slumped 29
percent over the past 12 months.
Investors liked what they heard. Shares rose 31 cents, or 2 percent, to
$15.71.
Bewkes was speaking with analysts about the company's fourth-quarter
earnings, which fell 41 percent following a big gain last year from the sale
of AOL's European online access business.
Without the year-ago gains and other one-time effects, adjusted profits rose
17 percent on stronger results for cable TV and movies. Time Warner said it
expected that growth to slow this year to a range of 7 percent to 9 percent.
Time Warner owns 84 percent of Time Warner Cable and may now have more
options for spinning off the division tax free. However it's not clear that
a complete spinoff will happen, particularly given a recent sell-off that
has hurt the value of all cable stocks.
Bewkes said the company was working to separate AOL's growing online
advertising-based business from the dial-up access business, which is in
rapid decline as people shift to high-speed Internet service from cable TV
and phone companies.
That could make AOL more attractive to potential bidders. However, those
prospects became murkier last week when Microsoft Corp. made an unsolicited
bid for Yahoo Inc. That would not only eliminate two likely bidders for AOL,
but create a major online advertising power.
Google Inc. owns 5 percent of AOL and has a right to trigger an IPO of its
stake in July. Google paid $1 billion in late 2005, valuing all of AOL at
$20 billion. AOL's value today is far less certain.
A spinoff or sale of AOL, should it occur, would mark a sea change from
2000, when Time Warner agreed to be purchased by the Internet company then
known as America Online at the top of the dot-com bubble. The deal turned
out to be disastrous, leading to massive write-downs and settlements with
shareholders and regulators over accounting improprieties.
Time Warner's cable division is the largest part of Time Warner, where many
of the other assets are focused on video entertainment, including Warner
Bros., New Line Cinema and a group of cable networks including HBO, CNN and
TBS. Time Warner also owns Time Inc.
Bewkes noted that Time Warner Cable has different financial needs than Time
Warner's other businesses, and may be better off on its own. Cable companies
tend to be able to support far larger amounts of debt than other companies,
given their consistent cash flows, and they also have needs for significant
investments to build infrastructure.
Time Warner reported net income of $1.03 billion or 28 cents per share,
versus $1.75 billion or 44 cents per share in the same period a year ago.
Without one-time items, the earnings were 29 cents per share, in line with
estimates of analysts polled by Thomson Financial. Profits were 23 cents per
share a year ago.
Revenues rose 2 percent to $12.64 billion, close to the $12.65 billion
expected by analysts.
Earnings from Time Warner Cable rose 19 percent on a 12 percent gain in
revenues, as the company continued to digest cable systems from Adelphia
Communications Corp.
Despite growth in premium cable services like digital phone and high-speed
Internet access, investors are worried about competition from phone
companies offering video services. Time Warner's cable unit reported a
decline of 50,000 basic video subscribers in the fourth quarter.
Time Warner's movie and TV production business had a strong quarter, with
earnings up 46 percent on a 13 percent gain in revenue. Will Smith's movie
"I Am Legend" set a record for a December film opening.
AOL posted an earnings increase of 29 percent despite a 32 percent decline
in revenues, as the company shed another 740,000 dial-up access subscribers.
The current total of 9.3 million subscribers is down 3.8 million from last
year. AOL sold its Internet access businesses in the United Kingdom and
France for a pretax gain of $769 million last year.
Time Warner expects to report full-year earnings for 2008 in the range of
$1.07 per share to $1.11 per share. Analysts polled by Thomson had been
expecting $1.11 per share.
For all of 2007, Time Warner reported income of $4.39 billion or $1.17 per
share, versus $6.55 billion or $1.55 per share in 2006. Revenues rose 6
percent to $46.48 billion.