Time Warner's Bewkes to Split Up AOL
By Gillian Wee
Bloomberg.com
Feb. 6 (Bloomberg) -- Time Warner Inc. plans to split off the AOL Internet-access service, eliminate 100 jobs and consider selling more of its cable-TV systems unit to revive a stock that has dropped 29 percent in the past year.
Time Warner posted its biggest gain in almost five years in New York Stock Exchange trading today. Chief Executive Officer Jeffrey Bewkes said on a conference call that his goal is to increase the value of the company and the stock price ``on a long-term basis.'' New York-based Time Warner forecast earnings growth of as much as 9 percent in 2008.
Fourth-quarter sales at AOL dropped 32 percent as the unit lost 740,000 customers for its service that provides traditional dial-up Web service. Bewkes, who took over from Richard Parsons on Jan. 1, is responding to investor calls for him to turn around AOL, sell a remaining 84 percent stake in Time Warner Cable Inc. and anchor the company around film and TV businesses.
``Bewkes's approach is logical,'' said Anthony DiClemente, an analyst at Lehman Brothers Holdings Inc., in an interview. DiClemente, based in New York, has an ``overweight'' rating on the shares and doesn't own any. ``All that's left is execution.''
Time Warner increased 59 cents, or 3.8 percent, to $15.99 at 1:16 p.m. in NYSE composite trading, after rising as much as 5 percent earlier. The stock was the 10th-worst performer in the Standard & Poor's 100 Index last year.
AOL Breakup
Time Warner will separate AOL's shrinking access business from the rest of the unit to focus on the online advertising division, Bewkes said the call. He said he will also consider Time Warner's ownership of two separate film studios and reduce expenses at the New Line Cinema unit.
``We are open to any strategic moves that make sense,'' Bewkes said.
The 100 job cuts will come at the corporate level, and cost reductions will save $50 million annually, Time Warner said.
Time Warner forecast 2008 earnings per-share from continuing operations will be $1.07 to $1.11. Excluding depreciation, amortization and some other items, profit will be $13.8 billion to $14.1 billion, 7 percent to 9 percent higher than the $12.9 billion earned in 2007. Analysts estimated $13.8 billion.
AOL Drop
In the fourth quarter, net income declined to $1.03 billion, or 28 cents a share, from $1.75 billion, or 44 cents, a year earlier, when Time Warner recorded tax and asset sale gains. Sales advanced 2.4 percent to $12.6 billion, the company said today in a statement.
AOL's operating income after depreciation and amortization dropped 70 percent to $274 million in the period, as sales fell to $1.25 billion. Operating income at the Time Warner Cable division increased 26 percent to $795 million, and revenue jumped 12 percent to $4.09 billion.
Fourth-quarter ad sales from AOL gained 10 percent. They will be unchanged or drop in the current three-month period, partly because of the loss of a large advertiser, said John Martin, Time Warner's chief financial officer, on the call.
Shedding part of AOL may be complicated by Microsoft Corp.'s $44.6 billion bid for Yahoo! Inc. last week. Microsoft's bid for Yahoo makes a partial sale, spinoff or partnership for AOL less likely, DiClemente said in a Feb. 1 report.
On the call today Bewkes said Microsoft's offer for Yahoo underscores AOL's value and he feels ``comfortable'' with Time Warner's position. DiClemente values AOL at $16.6 billion.
Getting Smaller?
Bewkes, 55, said the company is currently reviewing how much of the cable-systems unit it should own and will come to a decision by the time it reports its first-quarter earnings.
``Time Warner, the world's largest media company, six months from now is likely not to be the world's largest media company,'' said Porter Bibb, a managing partner at Mediatech Capital Partners LLC in New York, in an interview with Bloomberg Television. ``Dick Parsons did him no favors at letting him take over at this point in time.''
Time Warner's publishing business, which includes the more than 125 magazines produced by Time Inc., can turn into a growth business the more it expands online, Bewkes said on the call. Fourth-quarter sales and operating profit at the unit were little changed at $1.46 billion and $362 million respectively.
Shedding cable and AOL would bring Time Warner closer to Viacom Inc. Shares of the company, which owns MTV Networks and the Paramount film studio, advanced 7 percent last year. Gamco Investors Inc. fund manager Chris Marangi estimates Viacom trades for nine times projected 2008 earnings before interest, taxes and non-cash expenses, compared with seven times for Time Warner.
Gains at Time Warner's cable and film divisions, which benefited from increased customers and DVD releases of ``Hairspray'' and ``Harry Potter,'' countered a drop in sales at AOL in the fourth quarter.
Excluding gains on asset sales and writedowns tied to Warner Bros. investments, earnings were 29 cents, matching the average of 17 analysts' estimates compiled by Bloomberg. That compares with earnings of 23 cents a year earlier, excluding tax benefits and asset sale gains. Revenue was also in line with projections.