The conglom on Wednesday announced plans to unload its publishing division, a move that comes as other film and TV congloms are also shedding print media assets.
A streamlined, film and TV-focused Time Warner will go head-to-head against a newly independent Fox Group, whose publishing assets will also be housed separately when News Corp. splits in two this summer.
News Corp. chief Rupert Murdoch favors newspapers, not magazines, so investors don’t see News Corp. making a run at Time Inc. after the spinoff. Meanwhile, Time Warner could shake up the M&A landscape now that it is dispensing with the division that has been seen as a drag on its stock price. Time Inc. accounted for $3.4 billion of Time Warner’s $28.7 billion in revenue last year.
“The (spinoff) should unlock value as the conglomerate discount likely goes away and as higher earnings growth results in a higher multiple at (the) “core” media company,” RBC Capital Markets analyst David Bank wrote in a note to investors.
Time Warner shares have been rising in recent weeks as speculation about a deal for the publishing wing increased. The stock closed at $55.46 on Wednesday, and was up in after-hours trading following the spinoff announcement.
Details of the financial terms of the split were not immediately disclosed. Observers say the more nimble Time Warner could become more intent on pursuing deals. The company in recent years has tried to buy the MGM library and fielded a bid last year for international TV company Endemol.
Time Warner has no plans to change its name, unlike when it divorced America Online in 2009 and swatted AOL off of AOL Time Warner. The conglom has been shrinking for the past decade. It sold Warner Music Group to a group led by Edgar Bronfman, Jr. in 2004 and spun off Time Warner Cable, also in 2009.
The 1989 merger of Time Inc. and Warner Communications was the deal that created a true media behemoth, blending high-end magazines including Time, People, Sports Illustrated and Fortune as well as the sleeping giant that was HBO with Warner Bros.’ film and TV muscle. Henry Luce founded the publishing empire in 1923 with Time magazine.
Time Warner expanded further into cable with its acquisition of Turner Broadcasting in 1995.
Many in showbiz saw Time Warner’s exit from the struggling print media realm as just a matter time. The split came after efforts to sell, most recently to Meredith Corp., haven’t yielded a deal. The division recently laid off 500 staffers.
Time Warner chairman-CEO Jeff Bewkes is fully absorbed in the challenges of making and managing content in a rapidly changing video market. He said the newly streamlined Time Warner will now be able to focus entirely on its television networks, film and TV production business. He said the decision to initiate a split came “after a thorough review of options” and “will provide strategic clarity for Time Warner.”
Time “will also benefit from being a standalone public company able to attract a more natural stockholder base,” meaning investors who like the magazine business.
In the same logic as any company that gets separated from a bigger parent, Time Inc. will now be able to use its cash all for itself. Time Warner might have been tempted to deploy it in TV or somewhere returns were more assured.
The transaction, which will be completed by the end of this year, needs a nod from the SEC and approval of final terms from the company’s board.
Time Inc. CEO Laura Lang, a digital advertising sales exec who was recruited to lead the division in late 2011, has advised Time Warner that she will stay on through this process and will help in identifying and selecting a successor.
“Laura indicated to me that we should find a different kind of CEO for this new public company, and I respect her decision,” Bewkes said.
Time Warner has sold or spun off multiple divisions since its disastrous AOL merger in 2001:
- 2004: Sells Warner Music Group to Edgar Bronfman Jr., other investors
- 2007: Sells Atlanta Braves to Liberty Media
- 2009: Completes spinoffs of Time Warner Cable and AOL
- 2013: Announces spinoff of Time Inc.