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Parsons aims to calm fears

May 20, 2002  •  Post A Comment

Richard Parsons, AOL Time Warner’s new CEO, will waste no time making good on the promises he made to disgruntled shareholders at last week’s annual meeting, including simplifying the company through a cable spinoff.
Support is mounting on Wall Street for a spinoff of all the troubled company’s estimated $60 billion worth of cable systems, because it will go a long way in addressing the media giant’s partnership, liquidity and stock problems, analysts said.
At press time the AOL Time Warner board of directors was at a retreat discussing the cable spinoff and other strategies on which Mr. Parsons is expected to quickly act.
“We view a potential cable IPO as the best possible solution, Jessica Reif Cohen, analyst at Merrill Lynch, told clients in an extensive research report last week. “An IPO of the Time Warner cable business would alleviate the financial constraints (of $28 billion in debt) … as well as provide the company with currency for potential cable acquisitions,” she said. About $2.3 billion of Time Warner’s unconsolidated cable assets are included in TWE.
Ms. Cohen said she is concerned AOL Time Warner could find itself “in a weak strategic position, given a lack of acquisition capacity in an industry where consolidation opportunities continue to unfold and where size and leverage are becoming increasingly important.”
Near-bankrupt Adelphia Communications and family-owned, East Coast-focused Cablevision Systems are among the cable operators AOL TW possibly could acquire with cable-only stock. It also is likely AOL TW could acquire TV stations or a larger broadcast company such as Tribune Co., analysts said.
Mr. Parsons told shareholders-many of whom angrily lamented losing their “hard-earned money” with AOL TW stock down 40 percent so far this year-that he is in active discussions with merging AT&T Broadband and Comcast Corp., which control a 27 percent stake in the $42 billion Time Warner Entertainment partnership (which includes most of the company’s cable systems, HBO and Warner Bros.) that must be unraveled.
AOL TW also has to settle its TWE partnership score with Advance/Newhouse. TWE generates $1.6 billion in earnings before interest, taxes, depreciation and amortization on $3.5 billion in revenues and includes about $2.3 billion of Time Warner’s unconsolidated cable assets. The settlement will include important ISP arrangements between AOL and the other cable operators.
Sources said the deal could come together within 60 days but could take at least six months to complete.
Before that happens, AOL Time Warner likely will be in for more management changes and job cuts, especially in its troubled America Online division. The company declined comment last week on rampant speculation that it is gearing up for another round of aggressive staff cuts. However, sources say at least 100 jobs will be cut this week in America Online’s interactive marketing unit, which employs some 800 people. Mr. Parsons said he will detail the restructuring of the America Online division and other company changes at an analysts meeting slated for late June.
Mr. Parsons assured investors of the company’s liquidity and ability to service its $27 billion debt but made no commitment on a public spinoff of its cable systems. “There are no Enron-like problems here,” said Mr. Parsons, who personally greeted shareholders as they entered the theater before the start of the meeting.#