Media giant to separate cable unit

Time Warner closer to breakup

New York's Time Warner said first-quarter net income fell 36 percent to $771 million, or 21 cents a share, from $1.2 billion, or 31 cents, a year earlier. Sales rose 2.1 percent to $11.4 billion. (Mark Lennihan/Associated Press/File 2008)

NEW YORK -Time Warner Inc. chief executive Jeffrey Bewkes said he will separate the cable systems unit from the film and television businesses, bringing him a step closer to breaking up the world's biggest media company.

Time Warner also reported first-quarter net income fell 36 percent to $771 million, or 21 cents a share, from $1.2 billion, or 31 cents, a year earlier. Sales rose 2.1 percent to $11.4 billion, the New York company said in a statement.

By disposing of the 84 percent stake in Time Warner Cable Inc., Bewkes is responding to pressure from investors to focus on the company's entertainment businesses and a turnaround at the AOL Internet unit. Profit at AOL plunged 74 percent in the quarter as a 1 percent increase in advertising sales failed to make up for a shrinking Web-access business.

Before yesterday, the stock had declined 34 percent from a 2007 high.

Excluding a gain from the sale of AOL's access business in Germany and other items, earnings of 22 cents trailed the 23-cent average of 17 analysts' estimates compiled by Bloomberg. Analysts projected sales of $11.3 billion.

Time Warner was formed in 1989 when Time Inc. and Warner Communications merged. In 2001, AOL bought Time Warner Inc. for $124 billion. Plans to sell TV shows and magazines online never gelled, and the company took $100 billion in write-downs a year later. The takeover also sparked lawsuits from shareholders who alleged AOL inflated its stock price to make the purchase.

Gerald Levin quit as Time Warner chief executive in 2002 amid record losses. AOL founder and chairman Steve Case followed a year later. Time Warner's value, which peaked at $243.8 billion in May 2001, is now $54 billion.

Sales at Time Warner Cable rose 8 percent to $4.16 billion in the period. The unit's net income declined 12 percent to $242 million after marketing costs rose and the company recorded a gain from an asset sale a year earlier. Bewkes, 55, who became Time Warner chief executive in January, said in February he would complete a review of the cable stake by the end of April.

"Under the right circumstances, a complete structural separation is in the best interests of Time Warner and Time Warner Cable shareholders," Bewkes said on a conference call yesterday. "We're taking the right steps to deliver increasing shareholder value."

Bewkes said the boards of Time Warner and the cable group are close to reaching an agreement on how the unit would be separated, without giving specific details. "It was mostly anticipated by the Street that there would be a full spinoff of Time Warner Cable," said David Joyce, an analyst at Miller Tabak & Co. in New York. He recommends investors buy Time Warner shares and doesn't own any.