Internet search engine Google Inc.’s announcement that its upcoming initial public offering will be in the range of $108-$135 per share could be a major windfall for Time Warner Inc.
The final price of the Google shares will be set by investors under a Dutch-auction process the company has set up for the IPO. Google has not yet set an official date for the offering.
Time Warner owns about 7.4 million shares of class-D stock in Google (through its America Online Inc. subsidiary) that is immediately convertible to the same number of Google class-B shares after the IPO. Given the price range of the Google IPO, Time Warner could stand to reap between $800 million-$1 billion from its Google stake.
In its 10-Q quarterly report issued in May, Time Warner said it would sell about 10% of its stake, or between $80 million-$100 million worth, as part of the Google IPO. That would leave the company with about 6.7 million shares of Google stock after the IPO.
In a research report, Fulcrum Global Partners LLC analyst Richard Greenfield estimated that the Google stake equates to 17 cents-22 cents per share of Time Warner’s stock price of $16.58 per share.
Given the extremely low tax basis of the Google stake (AOL bought warrants for the class-D stock for about $22 million, or $2.97 per share), Greenfield wrote that he expects Time Warner “to look for a strategic transaction with Google to monetize the remainder of the stake tax-efficiently.”