Copyright 2005 Knight Ridder/Tribune Business News

Copyright 2005 Newsday


September 22, 2005, Thursday

By Harry Berkowitz

From Lexis Nexis

Saying that turning around America Online is more crucial, Time Warner chief executive Richard Parsons yesterday rebuffed billionaire investor Carl Icahn's prodding to completely spin off Time Warner Cable.

"Right now I think cable is strategically important," Parsons said at a Goldman Sachs investor conference in Manhattan. "Now would not be the time to cast it off. But will that change over time? We'll see."

Icahn, who has the backing of a group of investment firms with a 2.6 percent stake in the media giant, has been pushing for a complete spin-off of the cable unit and a buyback of $20 billion in stock in an effort to boost the share price.

"The major source of undervaluation is neither of those things," said Parsons, who met with Icahn last month. "The real driver of valuation is going to be AOL in the short term and in the long term."

Parsons said that having Time Warner Cable, the second-biggest cable company, gives the company's networks, including CNN and HBO, greater clout in negotiations, like "having a big brother in the schoolyard" to watch your back.

"All those things can be at risk and are at risk daily," he said, especially if competing cable and satellite distributors continue to gain power.

Time Warner and Comcast have a deal to acquire Adelphia Communications and split its cable subscribers. Then Parsons plans to spin off 16 percent of Time Warner Cable, leaving open the possibility of increasing that later.

He said the company is "looking hard" at the possibility of stepping up plans to buy back $5 billion in stock and even acknowledged that Time Warner may have "overshot the mark" in reducing debt.

As for AOL, Time Warner is trying to shift its focus on paid subscribers of its Internet access service, whose numbers have been sinking, toward attracting visitors to a new free Web site that could garner more ad dollars -- an approach similar to that of Yahoo.

"We need to accelerate the path we have been on," he said.

Although Icahn has criticized the 2001 AOL mega-merger with Time Warner, he has not stressed changes at AOL as a way to boost the stock price.

Parsons declined to comment specifically on reported talks with MSN owner Microsoft concerning AOL. But he said AOL could make a deal to use and rebrand another company's search technology so it could independently sell advertising linked to searches. Currently AOL uses Google for search technology.

In any deal, or even if a separate AOL stock were created in a partial spin-off, Time Warner would want to retain control.

"We don't want to lose control of and access to AOL for our other businesses," Parsons told reporters after his session at the media conference. "Not only do we think AOL has good growth potential, we think it has the ability to drive greater growth in our other businesses."