Time Warner to shed rest of its cable TV business
NEW YORK --Time Warner Inc. said Wednesday it plans to spin off the rest of its cable TV business, answering investor pleas to further simplify the media conglomerate's sprawling corporate structure.
The news came as Time Warner, which also owns Warner Bros., CNN, AOL and Time magazine, reported a 36 percent decline in first-quarter earnings from a year ago, when it had a gain from the sale of AOL's Internet access business in Germany. The results were mainly in line with expectations.
Time Warner didn't offer details on how or when the split with its largest operating division would occur, but said it was close to an agreement with the board of Time Warner Cable and expected to make an announcement soon.
The split had been widely anticipated on Wall Street. Incoming CEO Jeff Bewkes, in his first earnings presentation to investors in February, had promised to announce a final decision on the matter this month.
Time Warner's cable unit became a separately traded public company just over a year ago, but it held on to an 84 percent stake. It's the second-largest cable TV operator in the country after Comcast Corp.
Time Warner also reported progress on its plans to separate AOL's declining Internet access business from its online advertising operations, which many see as a precursor to selling of one or both divisions.
Investors have pressed for that as well.
Bewkes, speaking on a conference call with analysts and investors, acknowledged missteps in integrating various pieces of AOL's new advertising platform, but said he was "optimistic that this dislocation is largely behind us."
Bewkes also said all the steps required to divide AOL's two parts should be completed by the end of the quarter.
Time Warner has contemplated what to do with AOL for some time, and sold a 5 percent stake in the division to Google Inc. in late 2005 for $1 billion, spurning an approach from Microsoft Corp. Time Warner's decision to be acquired by AOL back in 2000 led to a host of problems, including massive write-downs after accounting improprieties emerged at AOL.
Now AOL's fate has been complicated further by Microsoft's unsolicited offer to buy Internet pioneer Yahoo Inc. That would remove two likely suitors for AOL, and AOL has also been considering a deal of its own with Yahoo.
AOL reported more weak quarterly results Wednesday that included a 25 percent decline in profit. Revenues fell 23 percent, as diminishing subscription fees more than outweighed a 1 percent gain in online advertising.
Time Warner earned $771 million or 21 cents per share in the first three months of the year, down from $1.2 billion or 31 cents per share a year ago. Revenues rose 2 percent to $11.42 billion.
Excluding the year-ago sale of AOL's German business and other one-time items, earnings per share were 22 cents, or 24 cents after adding back restructuring charges at New Line Cinema, which was folded into Warner Bros.
Analysts polled by Thomson Financial had predicted earnings of 23 cents per share.
Shares fell 42 cents to close at $14.85 Wednesday.
Time Warner's cable TV profits rose 7 percent on an 8 percent gain in revenues, and the company surprised analysts by adding 55,000 basic video subscribers, even though many had predicted losses.
Investors watch that number closely to see how cable companies are faring against competition from satellite TV providers as well as new cable-like video services being offered by phone companies.
In movies and TV production, profits fell 16 percent despite a 4 percent gain in revenues due to the $116 million in restructuring charges incurred as New Line Cinema was folded into Warner Bros. Without the charges, profits rose 19 percent.
Profits from cable networks, a division that includes HBO, CNN and TBS, edged up just 2 percent despite a 10 percent gain in revenues. 