Comcast Communications is looking for the exit doors from Time Warner Cable, and preferably sooner rather than later.
In documents filed with the SEC on Wednesday, Time Warner said it had been notified by Comcast that the Philadelphia-based cabler wants to begin the process of selling its 21% holding in Time Warner Cable. A Comcast trust that holds a 17.9% equity stake in Time Warner Cable has requested that TWC start the registration process for a possible stock listing for the trust’s full holding. Comcast also owns an additional 4.7% residual equity interest in Time Warner Entertainment.
The notice, which both sides indicated was routine, may nevertheless be more than just a friendly reminder of Comcast’s contractual right to force Time Warner to spin off the cable unit.
SEC probe ongoing
Analysts say that while Comcast was reinforcing its rights to require an IPO, the cabler is well aware that the Securities and Exchange Commission will not permit an IPO registration until its review of AOL accounting violations is resolved. No date has been set for completion of the review, a fact that continues to cast a pall over Time Warner’s financial progress.
The two companies have apparently been negotiating a value for TWC that may be holding up a quick resolution. Comcast could also look to be bought out in cash and/or other assets, though an IPO could put the highest value on TWC. Comcast CEO Brian Roberts has said on several occasions that he considers the Time Warner holdings non-core assets that will be monetized promptly and efficiently. Comcast has said it would use proceeds to further reduce its debt load and is committed to divesting its TWC holding by 2007.
Comcast and Time Warner late last year agreed to simplify and merge two separate joint venture cable system holdings in Texas and Kansas City en route to unwinding the alliance in two years. Those systems could be used as part payment for Comcast’s equity stake.
“It’s probably not a particularly adversarial move by Comcast, but they’re certainly making a concerted effort to preserve their rights and possibly negotiating position,” one Wall Street analyst said.
Comcast sources indicated that the notice was intended to make it clear that it wants to monetize its position in TWC promptly and efficiently.
Prudential Securities values Comcast’s combined 21% economic stake in TWC at about $5.4 billion. Bank further notes that in the event of the IPO, Time Warner has the right to the first $2.1 billion in proceeds to pay off a $2.1 billion loan that financed Comcast’s payoff in the restructuring of TWE last March. Comcast last year got $2.1 billion in cash, $1.5 billion in stock and the equity positions in TWC in exchange for ceding control of the programming assets, including HBO and Warner Bros., back to Time Warner.
Though Time Warner chief Richard Parsons has said TW does not need to float the cable unit for liquidity purposes, the new entity could provide a useful public currency for future deals such as an eventual buyout of Cablevision, without having to necessarily use Time Warner stock.