Might sell cable TV shares

AT&T, AOL

In public offering, assets would be separated from HBO network, film studio

July 31, 2002|By BLOOMBERG NEWS

NEW YORK - AT&T Corp. and AOL Time Warner Inc. might unwind their Time Warner Entertainment venture by offering shares of the partnership's cable television systems to the public as demand for initial public offerings declines.

Yesterday, the two companies put off a public sale of AT&T's stake in the partnership to pursue "an alternative transaction" with Comcast Corp., AT&T said in a statement. Comcast is buying AT&T's cable business for about $52 billion in stock and assumed debt, a transaction expected to close by year-end.

Time Warner Entertainment, created in 1993, owns most of AOL Time Warner's cable television systems, the Warner Bros. movie studio and the HBO pay television network.

Selling shares in the cable assets would give AT&T and Comcast as much as $10 billion in cash to reduce debt. AOL Time Warner, the world's largest media company, would take back AT&T's stake in Warner Bros. and HBO, investors said.

"The idea is to figure out a deal where they could take the cable assets public and remove the entertainment assets," said Joe Stocke, who helps manage $800 million at StoneRidge Investment Partners, which owns a million AOL Time Warner shares.

Such a transaction would simplify AOL Time Warner's financial structure, a goal of Chief Executive Officer Richard Parsons.

AT&T holds 27.6 percent of Time Warner Entertainment, and AOL Time Warner owns the rest. The companies haven't said what percentage of Time Warner Cable's systems AT&T would own under an "alternative" transaction.

Time Warner Cable operates systems with about 10.8 million subscribers, 9.1 million of which are held through Time Warner Entertainment.

Under one plan, AOL Time Warner would regain full ownership of Warner Bros. and HBO, leaving Time Warner Entertainment with only the cable holdings, said analyst Ted Henderson of Stifel Nicolaus & Co. In that case, AT&T would increase its stake in the venture to 35 percent to 40 percent and have the option of selling some or all of it to the public after the Comcast purchase is completed, he said.

Delaying an initial public offering of AT&T's stake might make sense, analysts said. Demand for IPOs has dropped since peaking in 2000, according to Bloomberg data. In the first six months of 2000, U.S. companies raised $65.7 billion, compared with $16.7 billion in the corresponding period this year, the data show.

An initial public offering of the cable assets "may be the cleanest scenario," said David Joyce, an analyst at Guzman & Co. who has an "outperform" rating on AOL shares and doesn't own any. "The markets could understand it."

An IPO of AT&T's stake in Time Warner's cable systems might fetch $7.5 billion to $10 billion, Joyce said. He said AOL Time Warner also might pay AT&T $1 billion or more in cash as part of the restructuring of the partnership.

If AOL Time Warner gave cable systems to AT&T in exchange for AT&T's stake in HBO and Warner Bros., an initial public offering of those cable systems by AT&T Comcast might fetch $7.5 billion to $10 billion, Joyce said.

Shares of AT&T, the largest U.S. long-distance telephone company and the largest cable operator, rose 26 cents to $10 yesterday in New York Stock Exchange composite trading. The shares have dropped 45 percent this year. AOL Time Warner rose 82 cents to $12.40. The stock has declined 61 percent this year.

AT&T spokesman John Heath said the companies are seeking to resolve the partnership issue as soon as possible. Tim Fitzpatrick, a spokesman for Philadelphia-based Comcast, didn't return telephone calls seeking comment.

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