Parent co. won't receive proceeds from offering
NEW YORK — Time Warner is a step closer to launching its IPO of Time Warner Cable, and with the biz red hot on Wall Street, the widely anticipated move could help reverse the conglom’s fortunes and buoy its stock.
On Wednesday, Time Warner filed a preliminary offering for approval by the Securities and Exchange Commission to sell $100 million in stock; that figure’s just a placeholder, as the actual amount will be in the billions.
The Stamford, Conn., cabler will trade on the New York Stock Exchange under the symbol TWC and become the only public rival of any significant size to giant Comcast at a time when investors are applauding the industry’s rapid rollout of bundled services, including video, high-speed Internet and telephony.
The IPO is one catalyst some on Wall Street were waiting for to boost TW’s sluggish stock, although a series of moves by management already has nudged the shares up $3-$4 in the past few months after playing dead at about $16 for years.
IPO filing follows TW’s purchase last July of bankrupt Adelphia Communications. TW acquired most of Adelphia for a combo of $8.9 billion in cash and 16% of TWC common stock. Comcast bought the rest of the company for $3.6 billion.
The TWC shares offered for sale in the IPO will be those belonging to Adelphia. Neither Time Warner Cable nor parent Time Warner will receive any proceeds from the proposed offering, the filing said.
Adelphia creditors have been battling over how to dole out the cash and stock from the sale to TWC. Earlier this week, a judge approved sending Adelphia’s Chapter 11 plan to creditors for a vote and set a Nov. 27 deadline for them to accept or reject it, with a confirmation hearing Dec. 7.
That could lead to an IPO sometime in the first quarter next year.
TWC is the nation’s second-largest cable company with more than 14 million subscribers, mostly clustered in five markets — New York, Southern California, Ohio, Texas and the Carolinas. It’s the biggest cabler in New York City and Los Angeles.
Adelphia brought it 3.2 million subs, although the service passes a much higher 7.6 million homes. TWC expects to add customers in Adelphia markets as it rolls out the phone service the smaller company never offered.
Time Warner said that as of June, 42% of its subs purchased at least two of the company’s trio of video, high-speed data and digital phone service. About 11% get all three.
TWC has about 46,000 employees and $9.5 billion in revenue.
As a public company, it said it has no plans to pay a dividend.
In the massive 400-plus page prospectus, where TWC lays out the benefits and risks of buying its stock, it notes that satellite rivals can’t offer high-speed Internet or telephone services on their own and that video via telecom companies won’t “be broadly available for a number of years. Meanwhile, we expect the cable industry will benefit from its existing offerings while we continue to innovate and introduce new services.”
That’s why cable stocks have been Wall Street darlings in recent months. A public cable division for TW comes at a time when investors are more enthusiastic about the stock than they’ve been in some time. The shares have been on a steady uptick in past weeks, buoyed in large part by growing investor optimism on AOL.
Hoping to avoid a repeat of last year’s proxy season, when Carl Icahn was breathing down their necks, management also has made a flurry of other announcements, including the sale of AOL’s European units, and put a handful of Time Inc. magazines on the block.
AOL is the key, analysts say. Under a radical new strategy backed by chief operating officer Jeff Bewkes, AOL is now being offered for free to subs who get high-speed service from another provider. That will mean a massive drop in revenue and cash flow compensated for, in part, by rising advertising sales.
At least for now, Wall Street seems happier with some clarity on AOL, even if the Netco takes a huge hit, than with an open-ended and hard-to-predict dwindling away of its customer base.