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    July 18, 2008

    Time Warner Finally Discarding AOL?

    Time Warner shares have enjoyed an above average 9% rebound over the past two days since reports surfaced that the company appears to be more aggressively seeking a new ownership arrangement for AOL. While the NY Times threw water on the idea that a sale to Microsoft was likely, the mere fact that TWX management appears to be getting more aggressive about AOL is a positive for the stock. I believe that lack of confidence in management's strategic thinking and willingness to act are major factors in the bad performance for TWX shares even by media stock standards....

    ....I am working on larger column about a post-AOL and post Time Warner Cable TWX. However, basically what you would have is Viacom with a much larger publishing division. Looking at a chart of Viacom over the past few months might make investors ask why Time Warner wants to go this route. However, Time Warner's film and TV studios are clearly better than Viacom's. The cable networks are comparable although their strategies target different demographic segments. TWX's large magazine publishing operation is a drag on overall growth, with added near-term risk if the national ad market continues to catch up to local market weakness.

    The bottom line is that Time Warner is cheap even if AOL is sold for almost nothing. The benefits of a more focused company with a superb balance sheet more than outweigh getting the perfect deal done for AOL. I guess I am saying that the mere fact that AOL discussions are now public means that investors should treat any deal as a good one. The worst case scenario is that AOL stays under the TWX umbrella.

    Posted by Steve Birenberg at July 18, 2008 10:49 AM in TWX

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