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Time Warner has detailed the separation agreement between itself and Time Warner Cable, with the cable company expected to pay a $10.9 billion, one-time dividend to shareholders.
“After the transaction, each company will have greater strategic, financial and operational flexibility and will be better positioned to compete,” said Time Warner chief executive, Jeffrey L. Bewkes (via The New York Times).
Time Warner will now be out of the media distribution arena altogether, something investors have been clamoring for, according to the AP.
The split, which is expected to happen in the fourth quarter, is a very good thing for Time Warner Cable, analysts say. Despite the additional debt it is taking on, along with the one-time payout to shareholders, cash flow prospects are “sufficiently strong to warrant an aggressive capital structure that was underleveraged as part of the bigger company,” Sanford C. Bernstein & Co. analyst Craig Moffett is quoted as saying by CNET.
An independently run and traded public company gives it more flexibility and control, and allows it to jettison drags like AOL on its financials, Moffett says.
Time Warner Cable will now begin to stage a pitched battle in the wireless market against the phone companies. The company has already said it would invest $500 million to help Sprint Nextel and Clearwire build a nationwide 4G wireless network using WiMax. It also owns a large amount of wireless spectrum as part of the SpectrumCo. consortium.
Time Warner Cable is the second-largest cable provider in the U.S., after Comcast. It has about 13.3 million video subscribers.
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