Bewkes Could Bring Changes
Cable Spin Might Work for Incoming Time Warner CEO
By Mike Farrell -- Multichannel News, 11/11/2007 7:00:00 PM
Analysts who’ve watched Time Warner Inc. stock hit new lows in recent weeks think a change is needed — and they hope they’ll get some from the next CEO, Jeff Bewkes.
Bewkes, a 28-year Time Warner veteran and chief operating officer since 2006, officially will replace retiring CEO Richard Parsons effective Jan. 1. Parsons remains chairman at least until the company’s annual shareholder meeting in May.
The stock is down 20% ($4.43) this year. And with cable operations bleeding basic subscribers, advertising revenue growth at AOL faltering and magazine publishing beset by a tight advertising market, Bewkes has lots of places to pursue changes.
The most likely outcome foreseen by analysts involves splitting up the company’s diverse assets — with a spinoff of Time Warner Cable ranking highest on that list.
Activist investor Carl Icahn pushed for a breakup in 2006, an effort Parsons beat back by agreeing to buy back more shares. This year’s decline has revived talk of a split.
Obviously, any push by Wall Street to break up Time Warner has a self-serving element — investment bankers would stand to make a fortune on deal fees in a split of the $64.3 billion (market capitalization) company.
| Jeff Bewkes’ To Do List |
|---|
| Analysts that want Time Warner Inc.’s new chief to ignite a stock-price gain want him to consider these moves: |
| SOURCE: Multichannel News research, analyst reports |
| Move: Reduce 84% interest in Time Warner Cable either by using its stock to buy another cable asset, or trading a portion of the interest for cash. Would make Time Warner a pure-play content company and TWC a pure-play cable operator. Odds: Likely in 12 to 18 months. |
| Move: Sell outright, spin off or sell a portion of AOL to the public through a partial IPO. Would finally rid Time Warner of the AOL albatross and further position Time Warner as a pure content play. Odds: Less likely in near term. |
| Move: Spin off or sell Publishing unit, including Time Inc. Allows Time Warner an exit from the less profitable and highly volatile magazine business. Odds: Not likely in the near term. |
STRONG TRACK RECORD
Bewkes has earned a reputation as a talented executive — when he ran HBO, it was one of the parent company’s most consistent performers and became an original-programming powerhouse thanks to groundbreaking series such as The Sopranos and Sex and the City.
But he’s not known for radical changes. And his more drastic moves have had mixed results.
It was Bewkes’s idea to wean Time Warner’s AOL division from its longstanding subscription-based business model, offer the service for free to customers with their own Internet connections and focus on advertising growth.
That initiative, unveiled in August 2006, initially showed promise. In the first full quarter after the announcement, ad revenue at AOL rose 46%.
But since then, ad revenue growth has been on the decline — up 40% in the first quarter, up 16% in the second quarter and up 13% in the third quarter.
“AOL.com is simply a less and less compelling place to promote brands and services,” Pali Research analyst Richard Greenfield wrote in a research note.
Most analysts say that if Bewkes makes a change, it’s likely to be a spinoff of Time Warner Cable, perhaps in 12 to 18 months.
Talk of a full or partial TWC spinoff has been rampant since Time Warner Inc. sold a 16% interest in the cable unit to the public earlier this year, as part of its joint $17.6 billion purchase of Adelphia Communications.
TWC’s stock also has faltered — down 33.7% ($13.11) since March 1 — and some analysts believe spinning off the unit entirely would unlock value for the cable company as well as make Time Warner Inc. a pure-play content business.
Other options analysts believe stand a lesser chance in the short term include an outright sale or partial spin of AOL and a sale or spinoff of magazine publishing.
SPIN ADVOCATE
In the past, Bewkes has been a proponent of reducing the parent company’s stake in TWC. At a UBS Securities conference in 2006, he even said it was possible Time Warner’s interest in TWC could dip below 50% over time, if the right deal came along that would prompt use of the stock.
More recently he’s pulled back a bit, but indicated a cable spin is something the company would look into.
“It’s not appropriate for us to describe our view now,” Bewkes said on a conference call last week to discuss Time Warner Inc. third-quarter results. “We will consider it and make decisions in due course.”
But with cable valuations at historic lows, it might be the wrong time to spin cable.
Sanford Bernstein cable and satellite analyst Craig Moffett said in a research note a TWC spin “would seem ill-timed, given all-time low valuations and sentiment. The market appears to have too little appetite to digest even the cable equity available today. An additional $20 billion cable float could cause severe indigestion.”
But Bewkes might not need outside motivation in order to effect change.
“I think he is a change agent, even though he’s been there [more than] 20 years,” Miller Tabak media analyst David Joyce said of Bewkes.
“Whenever someone is named CEO, they need to make their own mark in a big way and early on before lethargy sets in.”
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