Parsons Lays Plans to Boost TW Stock

Sep 26, 2005  •  Post A Comment

When Time Warner Chairman and CEO Richard Parsons last week laid out for investors a plan to jump start his company’s languishing stock price, it appeared that he was drawing battle lines as much as he was mapping out a strategy.

In his first public statements to Wall Street since news that billionaire investor and takeover king Carl Icahn had set his sights on Time Warner, Mr. Parsons made clear that while he took Mr. Icahn’s concerns seriously, Time Warner’s management had a firm grip on how to goose Time Warner’s stock price, which has been stuck at around $18 a share for the past several months.

“When you look at what Carl is suggesting, he’s saying, ‘You’re heading in the right direction, but we would like you to get there faster and with more weight,'” Mr. Parsons told a group of investors attending a media conference sponsored by Goldman Sachs in New York. However, he made clear that many of Mr. Icahn’s suggestions fly in the face of management’s thinking.

Mr. Icahn, along with several large investors, has begun buying Time Warner shares in an effort to increase their stake in the media giant, which presently stands at just under 3 percent. He wants to press the company to completely spin off its cable operation and increase the size of its stock buyback program to $20 billion from the current level of $5 billion. He is also looking to nominate at least one person to the Time Warner board of directors.

Mr. Parsons all but ruled out a complete spinoff of Time Warner Cable, saying the cable unit is very much a strategic asset for the media company, particularly as rival media companies increasingly own distribution assets. Calling it the equivalent of having “a big brother in the schoolyard,” Mr. Parsons said owning distribution was a key factor that could help as Time Warner’s content businesses negotiate with cable and satellite operators, and prevent, as Mr. Parsons quipped, CNN from being moved to “channel 967 in digital land, where it’s still carried, but no one knows where the heck it is.”

“We need to be sitting on the other side so we know we can get our product to market,” Mr. Parsons said. “If I imagine a world where Rupert [Murdoch, chairman and CEO of News Corp.] captured all the satellite distribution, and Brian [Roberts, chairman and CEO of Comcast] had the cable distribution, I would not be a happy guy, even though they are my friends.”

Create Better Value in AOL

That doesn’t mean he wouldn’t consider reducing his stake in Time Warner down the road, however. Mr. Parsons said he would consider such a move if it made sense for the company.

But what he thinks will really enhance shareholder value is a plan to transform the company’s ailing America Online unit.

Mr. Parsons said a top priority of the company is to position AOL to take on Web titans such as Google or Yahoo! in order to grab a larger piece of the advertising pie. He added the unit has to migrate away from being solely dependent on subscription revenue toward more of an audience-based business. However, he said, AOL would not abandon its shrinking dial-up business altogether, since it still generates considerable cash.

As Mr. Parsons sees it, Time Warner’s stock woes can be traced to AOL, which has suffered amid accounting scandals and a shift away from its bread-and-butter dial-up service in favor of broadband. Mr. Parsons believes that if AOL could regain its footing, the overall company would see its stock price advance.

And analysts agree. “Indeed, a move to bolster AOL’s competitive position would directly address investor concern that management is not doing enough to create shareholder value, as successful execution of the shift to an advertising-based business for AOL is the single most important value driver for the company in our view,” said Jessica Reif Cohen, a media analyst for Merrill Lynch.