Time Warner Confirms Plan To Spin Off Cable

Time Warner, the US media conglomerate, today confirmed that it will spin off its cable business in a deal that is expected to result in a $4 billion (£2 billion) windfall for investors.

As revealed by Times Online yesterday, Jeff Bewkes, chief executive at Time Warner who took over the role from Dick Parsons in January, will separate out the business and is currently in discussions with the divisions management.

Mr Bewkes said today, when revealing Time Warners first quarter results: Weve decided that a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies shareholders.

We are working hard on an agreement with Time Warner Cable, which we expect to finalise soon.

It is understood that Mr Bewkes agreed to the move, his first significant structural change at Time Warner since taking the helm, after three months of detailed talks with the management of the unit.

Mr Bewkes is thought to be eager to transform the company into a pure media-content business. It is understood that he aims to split off the company’s 84 per cent stake in Time Warner Cable, increase the debt levels of the business and release about $3.8 billion of cash — possibly in the form of a special dividend — that would be used to buy back stock.

The company announced today that revenues for the three months to March 31, 2008, rose 2 per cent to $11.4 billion while operating profit fell 23 per cent to $1.9 billion.

Alongside gains from networks and publishing, Time Warners cable division helped off-set falling profits at AOL, the internet group, and its filmed entertainment group. Revenue at the cable business rose 8 per cent to $4.2 billion while first quarter profit rose 10 per cent to $636 million.

Shareholders have been grumbling about the Time Warner share price, which has fallen by a third over the past year. It is expected that existing shareholders would receive a holding in the demerged business.

Henry Berghoef, research director for Harris Associates, a Chicago-based fund manager that holds 63 million shares of Time Warner in its $60 billion portfolio, said: “It would make sense to split the two companies. They have already been considering this at their own free will. They have different economic characteristics — one is a content business and the other is delivery.”

In a letter to shareholders in the group’s annual report in February, Mr Bewkes wrote: “We have long believed that cable is a great business, offering such advanced services as digital video, broadband internet access and digital phone to both residential and commercial customers. But, as the industry evolves, Time Warner Cable has increasingly different capital and financial needs than our other businesses.”

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