IPO Nears for Time Warner Cable; Offering seen in 2nd quarter, would follow big losses at AOL
Copyright 2003 Newsday, Inc.
Newsday (New York, NY)...01/10/2003
AOL Time Warner Inc. chief financial officer Wayne Pace said yesterday the largest media company's planned initial public offering of its cable unit will likely take place in the second quarter.
AOL Time Warner can probably raise $2 billion to $4 billion through an IPO of Time Warner Cable, said Michael Kupinski, who follows AOL Time Warner for A.G. Edwards & Sons. A $4 billion IPO would be the third-biggest U.S. initial share offering in the past year, behind CIT Group Inc.'s $4.87 billion IPO in July and Travelers Property Casualty Corp.'s $4.27 billion deal in March.
"Cable stocks in general have been out of favor, but Time Warner has had very strong results and an IPO should be well received," said Kupinski, who has a "buy" rating on AOL Time Warner. He doesn't own any of the company's shares.
An initial public offering would help the Manhattan-based company to reduce debt. It may also attract investors to cable stocks, an investor said.
"It brings in capital to pay down debt," said David Baker, who holds AOL Time Warner and Comcast shares among the $450 million he helps manage at North American Management Corp. "It will be good for cable valuations."
However, the Washington Post reported yesterday that AOL Time Warner will take a $10 billion charge because America Online's value declined. Some investors said the world's biggest media company may have to write down more of its $81.7 billion of goodwill unless it turns around its online business.
AOL Time Warner took a $54.2 billion charge in April, the largest expense in corporate history. The company last month said lower ad sales at its Internet unit, the biggest online service, will trim profits at the business by 15 percent before some costs.
"They are not building a track record you can trust," said Johan Van Der Biest, a fund manager who owns AOL Time Warner shares among the 65 billion euros ($68 billion) of securities he helps oversee at Dexia Asset Management. "You cannot exclude further writedowns." AOL Time Warner in October said it would book a "substantial overall goodwill impairment."
Company spokesman Ed Adler said the charge to be taken this month related to that earlier statement, declining to comment on its amount.
Advertising and commerce revenue at America Online will decline 40 to 50 percent this year, AOL Time Warner said last month. The unit's earnings before interest, tax, depreciation and amortization will fall 15 to 25 percent.
AOL Time Warner in August said it would sell shares of Time Warner Cable. Comcast, which acquired a 21 percent stake in the unit when it bought AT&T Corp.'s cable systems in December, has to sell some or all of its stake under an agreement with the Federal Communications Commission.
"We're looking for a second-quarter IPO for the cable company," Pace told investors at a Salomon Smith Barney investor conference in La Quinta, Calif.
AOL Time Warner shares rose 45 cents to close at $14.33 in New York Stock Exchange composite trading. AT&T shares rose 8 cents to $27.48.
The company in August completed a restructuring of its 10-year-old Time Warner Entertainment partnership with AT&T. The IPO couldn't take place until the parties had restructured.
AOL Time Warner's cable unit has increased cash flow by more than 10 percent a year, and its debt is about three times its cash flow, compared with 3.5 times for Comcast and as high as 8 times for some other competitors, Kupinski said.