AOL TW not saying no to Cablevision bid

May 21, 2001  •  Post A Comment

AOL Time Warner Chief Executive Gerald Levin last week raised the possibility that his company might acquire AT&T Corp.’s 23 percent interest in Cablevision Systems and perhaps seek a union of the two cable operators.
In response to a shareholder question at the company’s annual meeting in New York last Thursday, Mr. Levin said AOL Time Warner “has not stepped up in any way” to acquire AT&T’s “passive” stake in Cablevision. Mr. Levin said no deal is imminent.
However, he added, “It would be a very interesting company if we could put together our cable systems in the New York area.”
Time Warner and Cablevision are the two leading cable operators in the largest and most lucrative market in the United States.
Mr. Levin briefly noted what he called “the historical relationship” between the two companies. “We are in this business because of the Dolan family,” he said, referring to Cablevision’s controlling and founding family.
The Dolans first hired Mr. Levin years ago to work in the cable business.
It is unclear whether the federal government, which has been bent on deregulating the media business, would allow such a concentration of power in such a key metropolitan market.
AT&T Corp. is selling its Cablevision stake, valued at an estimated $1.7 billion, with other assets to reduce its nearly $50 billion in remaining corporate debt.
Among the other assets being sold is AT&T’s 25.5 percent stake in Time Warner Entertainment, valued at between $10 billion and $14 billion.
AOL Time Warner, which will generate more than $50 billion in free cash flow over the next four years, also is considered a suitor for the TWE stake.
However, last week AOL Time Warner was setting straight its own financial record.
The company said it will claim nearly $1 billion in restructuring charges stemming from its $124 billion merger in January, the lion’s share of which was related to severance and other payments made to departing employees.
In a Securities and Exchange Commission filing, the company said it expects to take a $965 million merger-related restructuring charge this year, which will not appear on its already complicated income statement. Most of the charges were classified as current liabilities in the first quarter.
“We are comfortable with the charge,” Merrill Lynch analysts Henry Blodget and Jessica Reif Cohen said in a note to clients. “We believe investors should be aware of its impact on overall cash flow and net debt,” they said.
In accordance with new accounting laws, the company will continue to “finalize” its merger-related expenses throughout the remainder of 2001.
The company said there are an estimated $400 million of costs related to exiting certain businesses and contracts, which mostly impact Warner Bros. and Turner Broadcasting. Another $565 million in costs is related to employee termination and general work-force reduction.
Of the total, $210 million is related to the businesses of the Time Warner Entertainment partnership which includes Warner Bros., HBO and a majority of the Time Warner Cable systems.
The restructuring also included a $70 million write-off in the first quarter that mostly related to AOL.
Company officials reiterated at the shareholders meeting that AOL Time Warner is on target to meet its projected $40 billion in revenues and $11 billion in earnings before interest, taxes, depreciation and amortization.
Merrill Lynch estimates that with one-time charges and $600 million in one-time expenses in the first quarter, AOL Time Warner’s free cash flow will total about $2 billion this year.