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AOL balancing act

Buyers circle Court TV, Comedy Channel

NEW YORK — While AOL Time Warner CEO Richard Parsons was in London this week hinting at the possibility of a second run at U.K. music label EMI and other potentially expensive overseas adventures, efforts to put cash on the company’s balance sheet are continuing in earnest at home.

Parsons has said that several noncore AOL TW assets could be on the auction block, igniting speculation that the company’s 50% stakes in Court TV and Comedy Central could be the likeliest investments to go first. One big drawback is that the pool of potential buyers for noncontrolling stakes of such assets is limited.

One insider said that Viacom is running the numbers at Comedy Central, its joint venture with AOLTW. Analysts have tentatively valued AOL TW’s stake at around $700 million, though neither owner discloses financial details. Viacom would not want the 50% stake to go to a third party, nor would it pass up the opportunity to take full control.

Over the years, Comedy Central has jacked up its overhead costs by taking over functions that used to be handled by MTV Networks, such as affiliate sales and marketing. Comedy Central’s staff has grown to 330, a roster that could be trimmed dramatically if Viacom bought out AOL TV’s stake. MTV could then take back some of the areas it previously exercised responsibility over.

Court TV on docket?

The fate of Court TV, AOL TW’s 50-50 joint venture with Liberty Media, presents a more intriguing opportunity. Unlike Viacom, Liberty is less likely to be a long-term holder of Court TV, meaning that another buyer could take full control for the right price. Still, any deal with Liberty chief John Malone is bound to be complicated for Court TV, an asset worth upwards of $1.6 billion.

Viacom has made no secret that it would like to add more cable networks to its successful, MTV Networks-led operation. Comedy Central is one, but Viacom has also looked at Chuck Dolan’s Rainbow Programming services, including AMC, Bravo and WE: Women’s Entertainment, and Vivendi Universal’s USA Network and Sci Fi Channel.

Other logical buyers such as MGM or Disney would have little interest in a minority position in either Comedy Central or Court TV.

Pressure has been mounting by investors and analysts for AOL Time Warner to deleverage its balance sheet, particularly in light of its agreement to buy out AT&T’s stake in Time Warner Entertainment for $1.2 billion in cash, plus equity in a new cable vehicle. Last month, Parsons confirmed that sales of noncore assets were being considered.

Speaking to investors at a conference Monday, chief financial officer Wayne Pace reassured investors that protecting the company’s credit rating was a top priority and that the company would be looking carefully at the near- term earnings potential of its international businesses.

Rating cut

The company curtailed its 2002 revenue expectations for the AOL unit Monday, leading to a rating cut by Jefferies and Co. to “hold” from “accumulate.” Several analysts were surprised that AOL hadn’t scaled back its expectations even further, given the slowdown in both online ad sales and subscription growth.

AOL execs insisted the unprofitable AOL Europe business is expanding sales and halving its forecasts losses, though the fate of AOL Latin America is less clear. The separately traded unit was recently delisted from Nasdaq, and Pace hinted the conglom would consider bringing in a new strategic partner — perhaps through a regional merger — to bolster the prospects of the Latin American portal and Internet service provider.

AOL Time Warner took its show to London this week to cast a closer eye on some of its struggling European online and publishing operations while promising investors that it’s determined to coax more revenue out of overseas ops even if it means shutting some of them down.

Parsons hinted AOL TW would still be interested in pursuing a deal for U.K. music label EMI, despite the fact its earlier attempt to merge the businesses was blocked by regulators. The more difficult climate for the music industry may smooth the path for second run at a merger deal.

Meanwhile, according to SEC documents released Tuesday, vice chairman Ted Turner last month sold 500,000 AOL Time Warner shares at $10.06 per share and on Sept. 3 sold a further 308,800 commons shares as permitted under an SEC rule governing company insider transactions.

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