US West paving way for TW deal

NEW YORK — US West is shifting most of its non-cable assets out of its media group, reducing the company’s debt and easing the way for the telco to finalize a cable deal with Time Warner Inc., Wall Streeters say.

News of the restructuring pushed Time Warner stock to a new high of $48.37 Friday, although it eased back to close up 50 cents to $47.75. US West Media Group stock rose 62 cents to $19.

US West, which owns 25.5% of Time Warner Entertainment — parent of Warner Bros., HBO and Time Warner cable — announced Friday that it had signed a definitive agreement to sell its cellular phone business to AirTouch in a deal worth $5 billion. AirTouch will assume $2.2 billion of US West Media Group’s debt as a result.

Separately, US West said it would transfer its domestic telephone directory publishing business from its Media Group into its Communications Group in a deal. The two divisions are organized as separate companies with their own stock and the deal enabled the media group to transfer another $3.9 billion of debt off its balance sheet.

The result, analysts said, was that US West Media Group’s debt drops from about $10 billion to $3.9 billion. US West Media Group will emerge as almost totally a cable operator, whose systems make it the third-largest in the country with 5 million subscribers.

And it’s likely to get bigger soon. US West has been negotiating for several months a deal to swap its stake in the TWE partnership for full ownership of some of TWE’s cable systems.

In a conference call with Wall Street analysts Friday, US West Media Group CEO Chuck Lillis insisted the restructuring had “no relationship” to the Time Warner negotiations. But analysts said the lower debt would give US West Media Group room on its balance sheet to do the deal.

That’s because Time Warner wants to do the deal partly by transferring some debt to US West, which the telco has resisted until now because of its own balance-sheet concerns.

While Time Warner chairman Gerald Levin has said repeatedly in recent months that the companies have reached a “conceptual understanding” of the deal, Lillis told analysts on a conference call Friday that the two companies are still some distance apart in the restructuring talks.

“We’re not there on price or on specific assets,” he said during the call, according to one analyst, although he also conceded that the broad outline of the deal had been agreed upon.

Arguing over systems

Sources say US West is arguing over which cable systems it wants in addition to valuations of the deal. It is expected to take systems with 3 million to 4 million subscribers at a total value of $6 billion-$8 billion, of which $2 billion to $3 billion would be paid in the transfer of debt. A US West spokesman declined to comment.

Meanwhile, Time Warner’s stock price rise is refocusing attention on when Seagram Co. will sell its 9.8% stake, now worth $2.7 billion.

Seagram denied Friday a televised report that it had hired Goldman Sachs to shop its shareholding around the market. But the stock is now trading $10 a share above Seagram’s average purchase price, ensuring Seagram could exit with a reasonable profit.

One Wall Streeter said the price may be high enough to prompt Seagram to sell. He said Time Warner’s stock is unlikely to rise too much more in the near term and Seagram will be taking a risk in waiting.

“I think they’re going to ride it higher,” said Cowen & Co. analyst Harold Vogel, who noted that Seagram CFO Bob Matschullat gave analysts the impression earlier this month that the liquor giant was in no hurry to sell.

Vogel said that might change if Seagram finalized a deal to buy Viacom Inc. out of USA Network.

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