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Time Warner Finalizes Spinoff Details

Zacks Equity Research

In order to cushion itself from bearing the brunt of print advertising, Time Warner Inc. (TWX) had decided to spin-off subsidiary Time Inc. in 2013. Yesterday, this Zacks Rank #3 (Hold) media giant unveiled further details of the divestiture, including an announcement of a spin-off dividend.   

The company intends to pay dividends on the shares of Time Inc. on Jun 6, 2014, when the spin-off closes officially. The dividend payment will be made on a pro rata basis, previously approved by the parent company’s board.

On the day of distribution, Time Warner’s stockholders of record as of May 23, 2014 will receive a share of Time Inc. each for every 8 shares of the parent company. However, fractional shares of the ex-subsidiary will be consolidated and sold through open market operations with the cash proceeds given to Time Warner shareholders on a pro-rata basis, instead of distributing fractional shares directly.

This strategy of special dividend payment is not uncommon if we closely review Time Warner’s past spin-offs. In 2009, Time Warner Cable Inc. (TWC), after being spun off from Time Warner, had also paid a special dividend.

Following the wind off, Time Warner will continue to trade under the ticker “TWX” on New York Stock Exchange (:NYSE) in the “regular way.” However, Time Inc. will trade on a “when-issued” basis under the ticker name “TIME.WI” from May 21, after which it will trade the “regular way” under the symbol “TIME” from Jun 9, which will mark the end of the “when-issued” trading.

The company first announced its plan to spin-off Time Inc. in Mar 2013 which followed the negotiation between Time Warner and Meredith Corp. (MDP) to create a magazine-based company, which, however, failed to materialize.

Management believes that the decision to offload Time Inc., which includes brands such as People, Sports Illustrated, InStyle, Time, Real Simple and Fortune, would augur well for Time Warner, as this would facilitate the latter to concentrate purely on television networks and film and TV production businesses.

Time Inc.’s magazines boast over 130 million readers nationwide per month, and its websites witness traffic of approximately 50 million every month.

The decision would be accretive to the shareholders of Time Warner in the same fashion, when this diversified media conglomerate divests Time Warner Cable and AOL Inc. (AOL) into independent companies.

Further, the company recently posted robust first-quarter 2014 earnings of 91 cents a share that surpassed the Zacks Consensus Estimate of 88 cents and increased 20% from the prior-year quarter, reflecting strength across Turner, Home Box Office (:HBO) and Warner Bros. Alongside, Time Warner’s total revenue of $7,545 million jumped 9% year over year, and cruised ahead of the Zacks Consensus Estimate of $6,755 million.

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