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Time Warner’s elevator stalls

Conglom's stock seems stuck at $16 and change

Few companies inspire such existential angst among investors as Time Warner.

“I want to own it. I want to like it. I keep thinking I have to buy it. And I do. I buy a little,” says one fund manager. “Then I think about every one of the divisions, except cable, and I don’t really like them.”

Some bad karma is weighing on shares of the world’s biggest media conglom. The stock’s stuck at $16 and change. Seems there’s no way, no how, it’ll budge.

A year ago, many on Wall Street called this price ridiculously low — not that they were buying. Now, many more say it’s a fair price — and they’re still not buying.

TW seems to be the only one out there buying its stock — at the brisk clip of 5 million shares a week. And even that’s not moving the needle.

What gives? There are several key areas that continue to gnaw at investors’ confidence:

  • AOL. Sentiment’s turned dour again.

Back in 2004, Google paid $1 billion for 5% of the ‘Netco — putting a theoretical value of $20 billion on AOL. The streaming Live Aid concert was a hit. The much-maligned unit was hot again.

But since then it’s continued to bleed subscribers. It announced another restructuring last month and no one has any idea if it will work. AOL is giving its service away for free to millions of subs as it shifts to a pure advertising model. No one thinks it’s worth $20 billion now. But is it closer to $5 billion — or to $15 billion?

  • Slower advertising is putting the squeeze on Time Warner’s cable nets. CNN’s still challenged.

One investor notes that TBS and TNT don’t own much of the content they air, including digital rights — unlike, say Viacom’s MTV Networks which owns most of what they run. HBO is sitting on millions from DVD sales and syndication fees for “Sex in the City” and “The Sopranos,” yet not likely its newer series “can come close to scratching the surface” of those commercial bombshells.

  • Warner Bros. is in a slump, with a trio of recent big-ticket pics — “Poseidon,” “Lady in the Water” and “The Ant Bully” proving duds. Even “Superman” was disappointing.

The down cycle could turn on a dime. Even so, some Wall Streeters fear the studio will be hard-pressed to grow after record profits in recent years, fueled in part by lively DVD sales. The studio earned $1.3 billion last year. “They’re sitting on inflated profits, getting no help from the current slate,” says one.

  • That vision thing.

News Corp. and Disney are “growing faster, with a clearly defined, well articulated strategy — and getting a premium. I don’t know what Time Warner’s strategy is. Being the biggest isn’t a goal — and I don’t even know if that’s their goal,” says one media analyst. Buying MySpace for $550 million was risk-free for Murdoch, she adds. He “had the foresight to realize what it is that makes you look like you’re on the offensive.”

There are a few things that could offer frustrated TW investors some solace.

With the Adelphia deal closed, a spinoff of the new Time Warner Cable is on track, likely by year-end.

One fund manager says the IPO could add as much as $5 of value to TW shares. Investors like cable these days. Stocks like Comcast and Cablevision are having a great run.

In terms of rethinking its current assets, the conglom will probably sell or split off AOL if the Netco’s turnaround is a bust. It could also dramatically pare down its 150-magazine roster.

Then there’s the old standby: a management shakeup.

Chief operating officer Jeff Bewkes took the lead in AOL’s revamp. There’s buzz that he’s open to cutting AOL lose, maybe publishing and cable as well, to run a smaller company with the studio and cable nets.

“That’s what I keep hearing,” says one fund manager.

He certainly thinks Bewkes would be more open to splitting the company than is chairman-CEO Richard Parsons, a staunch believer in the benefits of the big conglom.

Investors aren’t sure by any means that a split would boost the stock, but there seems to be a slowly growing consensus that it might be beneficial if Parsons stepped aside.

“He’s a very likeable guy. He was the right guy at the right time for mending fences” in the dreary aftermath of the AOL merger, says one fund manager.

But, he adds, “Bewkes is seen as a creative guy, a media guy. I think he’d be more successful” — be it in reality, or perception, or both — in galvanizing investors.

Some company insiders caution against counting Parsons out too soon, describing a savvy and competitive exec behind the laid back demeanor. “He personally wants to walk away having made shareholders a lot of money,” says one.

Parsons’ contract expires in the spring of 2008. He hasn’t said if he plans to stay on, but the sense is he won’t.

In fact, rumors are swirling that he may run for mayor of New York City in 2008. Michael Bloomberg’s been pushing him to do it.

TW denies it.

“Dick isn’t running for mayor, he’s running Time Warner,” the company says.

If TW can’t map out its own path from within, it may find itself revisited by the ghost of its recent past: Corporate raider Carl Icahn, who recently upped his holding in TW, may come back swinging next spring ahead of the annual shareholders’ meeting — and he may get a warmer reception from the Street this time.

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