Greenfield: Split Up Time Warner

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Controversial Pali Research media analyst Rich Greenfield lowered his rating on Time Warner Inc. last week from “buy” to “neutral,” stating in a report that he has lost faith in company management and believes that it should shed its troubled AOL unit once and for all.

Greenfield, who has been critical of Time Warner in the past, was “literally shocked” to read an Aug, 25 New York Times interview where Time Warner chairman and CEO Richard Parsons stated that his job is not his life.

“Most upsetting was Parsons' direct quote: ‘This is my job. It’s not my life. I don’t define myself by this,’” Greenfield wrote of the Times piece. ” We simply cannot imagine a similar comment coming out of the mouth of News Corp.’s Rupert Murdoch, Disney’s Bob Iger, CBS’s Les Moonves, Comcast’s Brian Roberts, etc…”

Greenfield wondered that with Parsons set to retire in May 2008 and chief financial officer Wayne Pace scheduled to retire at the end of the year, why Time Warner’s board of directors is willing to allow a “lame duck’ situation. Although chief operating officer Jeff Bewkes is widely expected to take Parson’s place, Greenfield was puzzled that the board has not conducted a wider search for a replacement.

“While Bewkes may be the absolute right person for the Time Warner chairman/CEO role, we are somewhat concerned with the recent struggles of his newly installed team at AOL and the rather odd trihead management structure he installed at HBO,” Greenfield wrote. “Given our belief that Time Warner needs to be broken up immediately, we would actually prefer to see a corporate restructuring expert brought in as CEO, and possibly shift Bewkes to a Chairman’s role (given his knowledge of the assets) or something to that effect.”

In June Time Warner announced that former HBO head Chris Albrecht – who resigned after a highly publicized arrest in Las Vegas for allegedly assaulting his girlfriend –would be replaced by interim CEO Bill Nelson and three co-presidents (Harold Akselrad, Eric Kessler and Richard Plepler).

Greenfield wrote in his report that Time Warner should split off its Time Warner Cable unit, AOL and publishing, while keeping its programming assets.

Greenfield was especially concerned about the troubles at AOL, which has struggled in its transition from a subscriber-based to an advertising-based model. Greenfield was particularly critical of the unit’s poor second quarter performance – advertising revenue growth slowed to 16% in the period versus 40% in the first quarter – which he believed clearly caught management off guard and raised his concern about management’s ability to run the business or turn it around.

Time Warner shares were down 12 cents each to $18.88 per share on Sept. 6 – the day Greenfield’s report was issued – and slid another 51 cents each to $18.37 on Sept. 7.

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