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Time Warner splits off cable TV

- The Washington Times - Thursday, May 22, 2008

NEW YORK (AP) - Time Warner Inc. said yesterday it would formally split off its cable TV business, giving the media conglomerate a $9.25 billion windfall and allowing it to focus on cable network, entertainment and publishing operations.

The separation of Time Warner Cable Inc. gets Time Warner out of the media distribution business altogether, something investors had been clamoring for. The company announced its decision to split up last month and said yesterday that the boards of the two companies had agreed to financial terms.

Time Warner Cable is the second-largest cable provider in the country after Comcast Corp. with about 13.3 million video subscribers. It has been a public company for more than a year, but Time Warner had held on to an 84 percent stake.

Jeff Bewkes, Time Warner's CEO, told analysts on a conference call that Time Warner Cable had grown into more of a "full-fledged telecommunications business" with expansions into high-speed Internet access and digital phone service, with different needs that "don't fit as well" with Time Warner's traditional media businesses.

The spinoff calls for Time Warner Cable paying a total dividend of $10.27 per share, or $10.9 billion to all shareholders, of which parent company Time Warner will receive $9.25 billion. Time Warner Cable will fund the dividend with its existing credit facility and a $9 billion, two-year bridge loan from a syndicate of banks, raising its total debt load to $24.2 billion.

Cable operators tend to have far different capital requirements than entertainment and other kinds of media companies, with significant demands for investing in infrastructure and new technologies as well as a reliable base of cash flows needed to service the debt to make those investments. Having its own stock will also allow Time Warner Cable to have a currency to use in potential acquisitions.