Bewkes: Time Warner Cable Split “Likely”


Time Warner CEO Jeff Bewkes hinted that the media giant is leaning toward a separation of its Time Warner Cable business, adding that while the company is pleased with its performance and growth prospects, its structure may not fit in with the overall company.

Bewkes first announced in February that Time Warner was investigating whether to divest of its 84% interest in Time Warner Cable and that a final decision would be made in April.That coincides with the expiration of restrictions that would increase taxes on the sale of the TWC stake.

At the Bear Stearns Media conference in Palm Beach, Fla., Tuesday, Bewkes said that although Time Warner believes cable is a good business with growing cash flow potential, “we don’t think that it is in its optimal capital structure. It can’t necessarily leverage itself and create the optimal balance sheet, given the structure and sharing [debt] ratings. Secondly, it [the TWC stock] doesn’t have enough float at 15% or 16%.”

Bewkes added that by reducing its interest in the cable unit, Time Warner Cable will have more flexibility both operationally and financially. He added that the company is evaluating whether the benefits of splitting the asset would outweigh the costs of a split.

“We really think it’s pretty likely we will be able to achieve those benefits and get the cable business into a more flexible investment possibility,” Bewkes said.

Bewkes said the new structure would make it easier for Time Warner Cable to accomplish some of the investment options it has before it, including bulking up its footprint through acquisition.

While the separation of the cable business would remove 45% of the total cash flow the company generates, Bewkes said that is not a big concern.

“It’s not that we want to be smaller – we have no problem with that,” Bewkes said. “We want it to be the highest return… It doesn’t matter whether Time Warner as a conglomerate of holdings is larger or smaller, it just matters whether the return on capital is higher.”

Asked whether a cable separation would allow Time Warner to offload some of its debt on the cable company and therefore make it easier for the media giant to make additional programming acquisitions – such as The Weather Channel or Rainbow Media Holdings – Bewkes hedged a bit.

“We have to look at everything,” Bewkes said of possible acquisitions. “…We want to optimize our returns for our shareholders, so we would not allow ourselves to be under-leveraged. That is always the test of whether something you could acquire would create a return better than returning the money to shareholders. We’re going to use the conceptual return demands of the shareholders to be the gating factor for anything we want to acquire. We don’t need to acquire anything.”