- The Washington Times - Thursday, August 22, 2002

NEW YORK (AP) AOL Time Warner Inc. is breaking free from a partnership that allotted AT&T; Corp. a share of its entertainment business, after years of negotiations.
But that independence comes at a price with AT&T; reaping billions of dollars in cash, stock and a stake in a new Time Warner cable company.
Most analysts say the money is well spent because it better positions the media conglomerate for future growth particularly in its troubled America Online division. The restructuring announced yesterday also gives AOL Time Warner the right to pitch its high-speed online service to millions of previously inaccessible cable system customers.
"AOL Time Warner simplifies its organizational structure and they do it in a tax-efficient way that doesn't leverage up its balance sheet," said Michael A. Kupinski, a media and entertainment analyst at A.G. Edwards. "And the agreement for AOL's high-speed service should provide the company with a shot in the arm. Until now, AOL did not have carriage on any other major cable operator other than its own systems."
AT&T; will receive $2.1 billion in cash and $1.5 billion in AOL Time Warner stock, as well as a 21 percent stake in Time Warner Cable Inc., in exchange for its nearly 28 percent holding in Time Warner Entertainment.
TWE includes most of AOL Time Warner's cable TV systems and its Warner Bros. film studio, its Home Box Office pay-TV service and other programming businesses.
In return, AOL Time Warner gets full ownership of TWE and the right to offer AOL high-speed broadband to 10 million of the households served by AT&T; and Comcast Corp., the company that is in the process of buying AT&T;'s cable business. That deal is expected to be complete by the end of the year.
"This represents a win-win outcome for AT&T; and Comcast and for us," said Dick Parsons, AOL Time Warner's chief executive. "We look forward to cooperating with them on AOL high-speed broadband and other initiatives ahead."
Regulators still have to approve the agreement, but investors weren't worried. AOL Time Warner closed up 97 cents, or 7.3 percent, at $14.33 on the New York Stock Exchange, while AT&T; Corp. advanced $1, or 8.9 percent, to $12.18. Comcast Corp., which is traded on the Nasdaq Stock Market, ended the session up $3.08, or 14.6 percent, at $24.25.
Both companies declined to affix a value to the cable stake, saying it will vary depending on market conditions when the company goes public. Analysts estimate the total package, including the cash and stock, adds up to between $8 billion and $10 billion for AT&T.;
The deal gives AT&T; and Comcast cash and marketable assets, while AOL Time Warner avoids having to buy its partner out for cash while it is struggling under heavy debt.
It is also a success for Mr. Parsons, who assumed his job three months ago amid considerable turmoil. AOL Time Warner has been hurt in recent months by a flailing stock price and soft revenues, as well as a government investigation of accounting practices at America Online.

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