Cable Operators

'True-Up’ Is Good for Time Warner

6/01/2007 8:00 PM Eastern

Bear Stearns analyst Spencer Wang maintained his “peer perform” rating on Time Warner Cable, adding that about 30 million additional shares should hit the market in the next few weeks, which should have a long-term positive impact on the stock.

Those 30 million shares had been held in reserve as part of Time Warner Inc.’s joint purchase with Comcast of Adelphia Communications last year.

That reserve, called the Adelphia “true-up” mechanism, was designed to overcome any disagreements between Adelphia creditors as to the value of TWC stock. Wang believes that those shares — valued at about $1.1 billion — should come on the market in mid-to-late June.

While the influx of shares should have a short-term negative effect on Time Warner Cable stock — increasing the number of outstanding shares — Wang believes that they will have a long-term positive impact. By increasing the float by about 25%, Wang believes that the additional TWC shares removes an overhang on the stock and increases liquidity, making the shares more “investable” for some institutional buyers.

Wang also expects TWC to be added to the Russell 1000 stock index in June, which he estimates could increase demand for TWC stock by about 6 million shares. He noted in a research report that stocks that had been added to the Russell 1000 gained 2.6% in value on the effective date and outperformed the index by about 9% for the two weeks following the announcement date.


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