US West sold its Time Warner shareholding Wednesday, as chances receded that a deal would be struck between the two companies anytime soon on breaking up the Time Warner Entertainment partnership.
US West sold its holding of 4.4 million shares in Time Warner to Wall Street firm Salomon Bros., which was in the process of re-selling the stock to institutional investors Wednesday night, Wall Street sources said.
US West inherited the stock in its acquisition of Continental Cablevision last November and sold it at Time Warner’s closing price Wednesday of $50, making the parcel worth $225 million.
Neither Time Warner nor US West would comment on the move Wednesday, although people close to the telco emphasized that the shareholding, about 0.7% of Time Warner’s outstanding stock, was never a core holding for the telco.
These sources said the timing of the sale was prompted by Time Warner’s rising stock price, which has been hitting all-time highs in recent days, but Wall Streeters interpreted the timing of the action as designed to spite the entertainment giant.
It’s “kind of childish,” said one Wall Streeter, although people close to Time Warner said they didn’t believe US West was sending any message.
Nevertheless the sale came the day the Wall Street Journal reported that Time Warner vice chairman Ted Turner had been telling the financial community that the company wasn’t planning to restructure its TWE partnership after all because of problems with US West.
More than two years ago Time Warner said it wanted to restructure TWE — which owns Warner Bros., HBO and most of Time Warner’s cable systems. Time Warner wants to regain full ownership of the studio and HBO while giving up some of its stake in cable.
But US West owns 25.5% of the partnership, and the two companies have spent much of the past two years in on-again, off-again negotiations trying to agree on a deal for the restructuring.
Lately Time Warner chairman Gerald Levin has said the two sides had reached a “conceptual understanding” on the form of a restructuring, believed to be a sale to US West of cable systems with 2 million to 3 million subscribers, but the price for the cable systems and the valuations put on Warner Bros. and HBO had not been worked out.
Wall Street sources say the two sides came close to an agreement recently, but senior Time Warner management was not happy with the price. The improving performance of Time Warner’s cable systems, and this week’s cable stock rally, have reinforced Time Warner’s views that it doesn’t have to sell cable interests cheaply, sources say.
Despite Turner’s comments, Time Warner remains interested in doing the deal if it can work out the price, sources say. “The talks are ongoing but there is a value gap,” said a Time Warner spokesman.
Negotiations are likely to resume in a few weeks, once US West Media Group CEO Chuck Lillis returns from vacation, sources say. Wall Streeters say US West will hopefully realize in coming weeks that it needs to moderate its demands.
“US West was being stupid and arrogant and not understanding that the relative leverage has changed,” said one source familiar with the talks.
Time Warner is no longer under pressure from its investors to sell, although its original motivation to restructure the partnership remains — to simplify its corporate structure. “If you can do a good deal we would like to have a simplified balance sheet, less debt and more content,” said one institutional holder.
Whether US West will change its stance is not clear. It has lately restructured its Media Group to make a cable deal easier to do, but people close to the telco note that while cable stocks have been on the rise lately, private sales of cable systems are not showing similar improvement in price.
A spokesman for US West noted that the restructuring had been Time Warner’s idea, adding, “We like what we bought and we like the way it’s performing, and we see no burning need to restructure.”