AOL-Time Warner cable unit may become biggest IPO in history
Copyright 2002 Knight Ridder/Tribune Business News
Copyright 2002 Denver Post
For two years, AT&T Corp. made futile attempts to sell its stake in AOL-Time Warner's cable TV business. Within the next few weeks a solution may arise: an initial public offering of the cable unit, The Wall Street Journal reported Monday.
Media reports speculated that such a deal could be the biggest IPO in corporate history, raising several billion dollars while providing AT&T with cash to pay down its $33 billion debt load and giving AOL a new stock currency to make more acquisitions.
But the IPO market stinks. Cable TV stocks are at five-year lows. And some question whether regulators are willing to wait for the market to improve, since they may require AT&T to sell the stake before approving the AT&T Broadband-Comcast Corp. merger this summer.
AT&T and AOL have been feuding over a sale of AT&T's 26 percent nonvoting stake for two years. The chief problem: AT&T believed the passive stake was not strategic, yet it could not find a buyer for the stake, which it acquired in 2000 when it bought TCI and MediaOne Group, once the Denver cable TV division of U S West.
"This transaction is important to unwind the feud between AT&T and AOL," said Scott Cleland, president of Precursor Group, an independent cable TV research firm. "AT&T wants its money back, but AOL has liked the passive investment and enjoyed having easy free money."
An independent appraisal of the value of AT&T's stake will be finished by the end of the month, and the clock is ticking for the two sides to come to a resolution, people close to the situation say. Regulators are on track to review the AT&T Broadband-Comcast merger and will likely consider AT&T's stake in AOL-Time Warner cable in its decision.
The merger would create the nation's largest cable TV company, reaching one of every three US homes.
The new company could be even more far-reaching if it keeps the stake in No. 2 Time Warner.
Comcast officials promise to sell the stake in Time Warner Cable no matter what.
"The government doesn't want them to own the second-largest cable company too," said Sean Badding, a cable TV analyst with the Carmel Group in Carmel, Calif. "Regulators are looking at this very closely to ensure they're protecting themselves and the consumer."
AOL-Time Warner is under increased pressure by investors to separate the cable business from the rest of the company, which includes America Online, Netscape and filmmaker Warner Bros. AOL has struggled to integrate the far-flung company following the $133 billion merger between AOL and Time Warner. It has since lost billions.
AOL chief executive Richard Parsons has said he wants to streamline AOL's corporate structure and make it easier to understand.
Plus, the company's heavy debt load — $28.5 billion — and its stock price — down 75 percent since last year — preclude it from making big acquisitions.
With an IPO, AOL-Time Warner could retain control of the cable company and use the stock of the new company to buy other cable companies.