Time Warner Goes Pure Play, Sheds AOL


Time Warner Inc. officially completed its longtime effort to become a pure-play content company on Dec. 10 with the spinoff of its AOL online unit as a separate publicly traded stock.

The AOL spin was the last component of the plan to narrow Time Warner focus on its cable programming, movie studio and publishing businesses. In March, the media giant spun off its Time Warner Cable distribution arm.

AOL has been on shaky ground for months and the spin officially closes a nearly 10-year odyssey that began with the 2001 formation of AOL Time Warner, which was thought at the time to herald a new era by melding old media and new media assets, but instead has proven to be one of the worst business mergers in U.S. history.

Time Warner officially expunged the AOL name from its corporate moniker in 2003 under then chairman and CEO Dick Parsons and current chairman and CEO Jeff Bewkes finished the job shortly after taking the helm in 2008, further separating the AOL business, Time Warner Cable and content through spin-offs and restructurings. In March, when AOL hired former Google executive Tim Armstrong as its CEO, most analysts expected a complete separation of AOL to be inevitable.

The spinoff was actually completed on Dec. 9 in a tax-free dividend to Time Warner shareholders who received one share of AOL stock for every 11 shares of Time Warner they held. On Dec. 10, its official first trading day, AOL shares opened at $23.67 each, rising as high as $24.19 each before settling in at $23.19 per share later in the afternoon.

In a research note, Miller Tabak media analyst David Joyce, who initiated coverage of AOL with a “buy” rating, said near-term turbulence in the stock as holders reconfigure their portfolios may present an opportunity for growth in the price of the shares. Joyce placed a $32 per share 12-month price target on the stock.

Joyce wrote that there might be better entry points for the stock as Time Warner shareholders unload their AOL stock either because of large capitalization or dividend requirements (AOL will not issue a dividend currently). But he said that the ultimate value of the stock will depend on one thing.

“Higher valuations will rely on investors’ confidence improving over time that AOL is executing on its content and advertising strategy,” Joyce wrote.

In a memo to employees after the split, Bewkes said that as a pure-play content provider, the focus will now be on four initiatives: leveraging its scale and brands to develop compelling content; making the business more efficient; increasing its international presence and driving toe development of new business models to capitalize on new technology.

“By returning to our roots in content, we’re better positioned to achieve our best possible performance,” Bewkes wrote in the memo. “With the economy starting to recover, we expect to see our businesses become more profitable. Even more importantly, our strengths in content are becoming more valuable, as the media industry and consumer usage evolve.”