The board of directors of Time Warner (News - Alert) and Time Warner Cable have announced the approved agreement to complete legal and structural separation of the two companies.

 

Time Warner is a media and entertainment company with business activities including interactive services, cable systems, filmed entertainment, television networks and publishing.

 

Time Warner Cable is the second-largest cable operator in the U.S., operating from five main geographic locations of the country. As of March 31, 2008, Time Warner Cable served approximately 14.7 million customers.

 

"This is the right step for Time Warner and Time Warner Cable stockholders. After the transaction, each company will have greater strategic, financial and operational flexibility and will be better positioned to compete. Separating the two companies also will help their management teams focus on realizing the full potential of the respective businesses and will provide investors with greater choice in how they own this portfolio of assets. We're bullish on Time Warner Cable's prospects, but its strategic goals and capital needs are increasingly different from those of our other businesses," said Jeff Bewkes, president and CEO, Time Warner.

"Once the transaction is completed, Time Warner will have a streamlined portfolio of leading businesses focused on creating and distributing our branded content across traditional and digital platforms worldwide. Our company will also have increased flexibility in its capital structure. We'll continue to balance investment opportunities against the benefits of returning capital directly to our stockholders, within a disciplined financial framework intended to maintain solid investment-grade credit ratings," said Bewkes.

 

For Time Warner Cable, the announcement is an important milestone in its evolution as a stand-alone public company.

 

“In a single transaction we increase our strategic and financial flexibility, simplify our capital structure, enhance the public float and liquidity of our stock and return substantial capital to our stockholders. Importantly, we expect to accomplish all of this while maintaining solid investment-grade credit ratings. Paying a sizeable, one-time dividend is a reflection of our continued confidence in our growth prospects. Our separation from Time Warner also enhances our ability to compete aggressively and perform well in a highly competitive environment by delivering the innovative telecommunications services that our customers need, while making prudent investments to deliver continued value for our stockholders," said Glen Britt, president and CEO, Time Warner Cable.

Important clauses in the transaction:  include:

-- Time Warner exchanges its 12.4 percent interest in TW NY Cable Holding, a subsidiary of Time Warner Cable, for 80 million newly issued shares of Time Warner Cable's Class A common stock - increasing Time Warner's ownership stake in Time Warner Cable's common stock from 84 percent to 85.2 percent;

-- Time Warner Cable declares a one-time dividend to all of its stockholders of $10.27 per Time Warner Cable common share - a total of approximately $10.9 billion - payable immediately prior to completion of the separation;

-- Time Warner receives $9.25 billion from this dividend;

-- Time Warner converts its Time Warner Cable Class B (News - Alert) common shares (each Class B common share has the voting power equivalent to 10 Class A common shares) into Time Warner Cable common shares on a one-for-one basis in a recapitalization that results in Time Warner Cable having one class of common stock; and

-- Time Warner distributes its entire ownership stake in Time Warner Cable to Time Warner stockholders in a tax-efficient manner. The exact form of the distribution will be determined shortly before the closing of the transaction, based on market conditions.

 

Time Warner Cable plans to fund part of its one-time dividend through its revolving credit facility. The remaining $9 billion will be made available through a two-year bridge term financing from a syndicate of banks. As part of the agreement, Time Warner agrees to provide a commitment for a two-year term loan of up to $3.5 billion for Time Warner Cable to repay the bridge financing at its maturity, in the unlikely event Time Warner Cable failed to replace the bridge financing with long-term financing.

A special committee of independent directors was formed for reviewing, considering, evaluating and participating in the negotiation process. Time Warner Cable's board of directors approved the unanimous recommendations made by the special committee.