News

Parsons: There's No Comcast Squeeze

1/11/2004 7:00 PM Eastern

Time Warner Inc. chairman and CEO Dick Parsons tried to squelch fears that the media giant may be forced to pony up billions of dollars as a result of Comcast Corp.'s request that its big stake in Time Warner Cable be registered for possible sale, telling investors that his company is under no obligation to buy it.

On Dec. 31, Comcast requested that Time Warner Inc. register Comcast's 17.9% stake in Time Warner Cable, a move that many saw as the first step in eventually monetizing that asset.

Comcast received a 21% equity interest in Time Warner Cable in March, as part of the restructuring of the Time Warner Entertainment L.P. partnership. According to a Securities and Exchange Commission document filed by Time Warner Inc. Dec. 31, Comcast owns a 17.9% direct interest in TWC Inc. and a 4.7% residual equity interest in Time Warner Cable subsidiary Time Warner Entertainment. Monetizing that 4.7% stake in TWE would likely require a separate transaction.

The next step in the process would be for Time Warner Cable to file a formal registration statement with the SEC.

But sources familiar with the situation said that would be unlikely until Time Warner resolves a separate SEC investigation of its America Online unit. Time Warner has said in the past that it is cooperating with the SEC in the investigation, which is ongoing.

Comcast's interest in Time Warner Cable is held in a trust — a condition of federal approval of Comcast's acquisition of AT&T Broadband in 2002 — and the Philadelphia-based MSO has indicated a desire to sell that stake at some point in the future. Comcast has until 2007 to divest of the Time Warner Cable position.

But some feared that registering the Comcast stake could mean that Time Warner Inc. would be on the hook to buy Comcast's interest in Time Warner Cable — valued as high as $5 billion — which would reverse the strides the media giant made last year in reducing its debt.

A little more than a year ago, Parsons made the bold pledge that he would reduce Time Warner Inc.'s debt from a near crushing $26 billion to $20 billion by the end of 2004. Through the sale of several non-strategic assets for a total of about $5.1 billion, Parsons was able to achieve that goal last year, about one year earlier than expected.

But some observers feared that the Comcast registration would reverse all that, forcing Time Warner Inc. to come up with $5 billion quickly.

At the Citigroup Smith Barney Entertainment, Media & Telecommunications conference Jan. 6, Parsons said there was no such obligation.

He said Time Warner Inc.'s only requirement is to make a reasonable best effort to register Comcast's share of Time Warner Cable.

"That is the extent of our obligation," Parsons said. "There is no put, there is no overhang on the balance sheet. We are in the process of working with them."

Comcast could technically sell its Time Warner Cable stake to a third party once the securities are registered.

But while Time Warner Inc. would still own 79% of the cable entity, it is unlikely that they would want another partner in the business.

Time Warner Inc. had planned to satisfy the Comcast option through an initial public offering of Time Warner Cable, where Comcast could sell its stake to the public.

The ongoing SEC investigation and a sluggish IPO market put the kibosh on those plans.

Parsons also said Time Warner Inc. was working with Comcast on possibly retiring their Time Warner Cable interest without issuing any cash.

"In the interim, we continue to talk to Comcast about more cost efficient, tax efficient and creative ways of resolving this issue," Parsons said. "I think they [Comcast] are being prudent in making sure they don't end up at the end of the day with no way of complying with the government."

Later at the same conference, Comcast CEO Brian Roberts said that Comcast would like to monetize the stake adding that he would be open to an asset trade as well.

"We would like to monetize the stake," Roberts said. "Cox had 30% or 35% growth last year … and Comcast did, and I think Time Warner Cable did, so we've made a good investment decision to wait to sell. But we've made an agreement with the government to get out of the position in five years and we want to get on with it."

Roberts added that Time Warner and Comcast have successfully unwound other partnerships — most recently cable joint ventures in Kansas City and Texas — and that the Time Warner Cable stake is the next step.

"We don't want to be forced in a fire sale to sell a very valuable, wonderful 21% stake in a large cable company, so we did the logical thing," Roberts said. "We wanted to demonstrate that we've been trying throughout 2003. We've concluded the other matters, let's start this process."

September