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Time Warner Cable Leaving the Nest

As expected, Time Warner Inc. (NYSE: TWX) and its cable division have agreed to part ways, as the mother ship is spinning off its 85.2 percent stake in Time Warner Cable Inc. (NYSE: TWC), taking in a hefty dividend in the process.

The deal is expected to close late in the year as the cable unit hashes out new change-of-control franchise agreements. (See Time Warner, Cable Unit Split.)

Time Warner Inc. CEO Jeff Bewkes, who succeeded Richard Parsons at the start of 2008, indicated in late April that the agreement was well downstream, but that the parties were still finalizing the details. (See Bewkes: It's Time to Spin Time Warner Cable.)

Among those final details:

  • Time Warner Cable is declaring a one-time dividend to all stockholders of $10.27 per share -- $10.9 billion in total -- payable once the separation is complete. Time Warner Inc. will get $9.25 billion from this special dividend.

  • Time Warner Inc. is exchanging its 12.4 percent stake in TW NY Cable Holdings, a subsidiary of Time Warner Cable, for 80 million newly issued shares of the cable division's Class A common stock.

  • Time Warner is converting its Time Warner Cable Class B common shares, each equal in value to 10 Class A common shares, into Time Warner Cable common shares on a one-for-one basis.


The special dividend was a surprise, "at least in its sheer size, and it is a welcome one at that," Sanford C. Bernstein & Co. Inc. analyst Craig Moffett said in a research note distributed Wednesday. The two transactions -- the spinoff and dividend -- "deliver on two of the most hopeful elements of the Time Warner Cable story; a return of cash to shareholders, and shareholder-friendly governance," Moffett added.

"This special divided is a statement of our confidence in our business – both our growth prospects and in the level of our ongoing capital needs," Time Warner Cable CEO Glenn Britt said during this morning's conference call. Still, the deal will take some time to polish off, with as much as six months added in as the cable unit muddles through change of control provisions.

Britt estimated that the license transfers would apply to about 20 percent of Time Warner Cable's 4,500 franchises. "We have been through the franchise transfer process more times before than I can count. Every time we have restructured the company in some way. It normally takes four to six months to get them all done, so that is what we're anticipating here," he noted.

Time Warner believes the cable division has good prospects, but "its strategic goals and capital needs are increasingly different from those of our other businesses," Bewkes said in a statement, referring to AOL Inc. (NYSE: AOL) and TW Inc.'s raft of movie and TV studio and publishing holdings.

This morning, during a call with analysts and reporters, Bewkes reiterated that Time Warner Inc. is "vigorously pursuing" the separation of AOL's access subscription business from its audience advertising arm.

On the Time Warner Cable side, Britt talked up the flexibility and the "solid investment-grade rating" the MSO gets out of the separation.

Time Warner Cable shares rose $1.12 (3.71 percent) to $31.34 each in early trading Wednesday. Time Warner Inc. shares were relatively flat -- up 22 cents (1.36%) to $16.37 apiece.

Time Warner Cable, with 13.3 million basic video subs and systems passing north of 26 million homes, is the second largest cable MSO in the United States. Comcast Corp. (Nasdaq: CMCSA, CMCSK), with 24.7 million subs, is the largest.

— Jeff Baumgartner, Site Editor, Cable Digital News

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