Time Warner sets cable split


Less than a month ago Time Warner CEO Jeff Bewkes said Time Warner Cable was going to be separated from the mother ship and to expect details “soon.” Well, soon is now. The 85% of Time Warner Cable now owned by the parent is going to be distributed to Time Warner shareholders after it pays a big dividend and the two will become completely separate.

“This is the right step for Time Warner and Time Warner Cable stockholders. After the transaction, each company will have greater strategic, financial and operational flexibility and will be better positioned to compete,” Bewkes declared as he announced details of how the split will be accomplished.

Time Warner’s super-voting shares in Time Warner Cable will be converted to ordinary shares and then distributed to Time Warner shareholders, who will then be free to sell or hold them as the cable unit goes its own way with its own management. But it will go away with a sizeable debt load. Just before the separation, Time Warner Cable will pay a one-time dividend of $10.27 per share to all of its shareholders. That’s a total of $10.9 billion, of which $9.25 billion will go to Time Warner.

So, what will Bewkes do with all of that cash? In a conference call with analysts, management indicated that possible uses include the return of capital to shareholders and disciplined acquisitions. “Given that TWX’s regular dividend yield increases materially upon separation, we don’t believe a return of capital via regular dividend is likely. A significant share buyback is possible, and we believe an orderly share buyback plan is mostly likely for a large portion of the $9.25 billion cash dividend. On the acquisition front, will TWX continue to seek acquisitions for its AOL division, such as Bebo.com? Or are strategic acquisitions in the Cable TV networks segment more likely? Given a still-fresh management team, we still don’t yet have a good feel for how ‘strategic flexibility’ for TWX will play itself out,” said Lehman Brothers analyst Anthony DiClemente in a note to clients after the call.