Time Warner Completes Cable Spin-Off, Sets Stage For AOL Split Next

Time Warner (TWX) has long been a media conglomerate difficult for investors to dissect. However, that may be about to change and the moves could finally extract some value for Time Warner shareholders. The company will complete its spin-off of Time Warner Cable at the end of the month, which offloads billions of debt to the cable company and frees up cash flow at TWX.

Time Warner is also making some moves at its AOL division. AOL has hired Tim Armstrong, formerly the head of U.S. sales at Google, as its new CEO. The conventional wisdom is that Time Warner will spin off AOL as well, in order to allow Armstrong to maximize profit and growth potential at the online unit.

All of this should be good news for Time Warner shareholders, whose stock has been cut in half over the last year and sits near its lows. Time Warner retains some very strong brands, including HBO. With less debt from the cable division, coupled with a $9 billion cash infusion from the spin-off and a new strong management team at AOL, investors might finally begin to look at the stock again in the intermediate term.

As a result, bargain hunters who prefer strong large cap companies might be interested in checking out TWX shares at $8 each. Not only do they sit near their lows, but they yield 3% and trade for less than 5 times trailing cash flow.

Full Disclosure: No position in TWX at the time of writing, but positions may change at any time

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2 Thoughts on “Time Warner Completes Cable Spin-Off, Sets Stage For AOL Split Next

  1. Given TWX got rid of the loans of TWC plus the mentioned $9B infusion and other perks, how come TWX went down on the news and TWC went up?

  2. Chad Brand on March 18, 2009 at 7:34 PM said:

    This cable spin has been in the works for many months, so the details being released (dates, rates, etc) would not be surprising to people, so I would not expect a move related to the news when everybody already knew it was going to happen. Since TWX is mainly a consumer business, the stock will react to the consumer sector regardless of any restructuring in the short term.

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