Openness helps ailing conglom
AOL Time Warner lost 2 million cable subs last week in a rejiggered pact with partner Advance/Newhouse.The stock was hit and new topper Richard Parsons lambasted. Yet many on Wall Street give the CEO high marks for timely, thorough disclosure of issues and potential outcomes from the Newhouse talks — openness being just what the doctor ordered for the ailing conglom. “From my point of view, Parsons gets an ‘A’ for his behavior with investors,” says one fund manager who’s been critical of the company. “They disclosed this at the earliest possible opportunity, and the ramifications of a best and worst case.” America Online, the division that shoulders most of the blame for the stock’s freefall in recent months, “had a reputation for being on the edge, from the point of view of accounting propriety. Bringing Parsons in was meant to improve disclosure. And it has,” he adds. The deal also removed a lingering cloud over the company’s cable biz and simplified its balance sheet. The Advance/Newhouse partnership dates from 1995, and since then, Time Warner has been running the systems — in Detroit, central Florida and Bakersfield, Calif. Now, AOL TW will cede control to Newhouse and move the assets off its books — chipping its subscriber base to 10.8 million. The companies will still buy programming as a block and share costs. The best scenario for AOL TW would have had Newhouse stick to the status quo. The worst case could have seen AOL Time Warner disbursing precious cash to buy its partner out, or Newhouse walking away completely. Tensions were said to arise after Time Warner’s merger with AOL as Newhouse was surprised, along with all of Wall Street, by the slow rollout of AOL’s high-speed Internet service. “Newhouse may have wondered if AOL was running the systems for its own benefit, not for the cable company’s benefit,” says another fund manager. Now the assets are unencumbered if Si Newhouse wants to sell — to raise cash for an acquisition, perhaps. He’s said to have eyed Discovery Communications.
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