Time Warner, cable unit begin 'new era'

Shares fall on first day of trading after separation

NEW YORK --  History was in the air Monday as shares of Time Warner and Time Warner Cable had their first trading session after the spinoff of TWC and related reverse stock splits.

"A new era for Time Warner," was the title of a memo TW chairman and CEO Jeffrey Bewkes sent to staff to kick off the conglomerate's newly increased focus on content businesses.

Sanford C. Bernstein analyst Michael Nathanson, in a report, quoted President Gerald Ford's post-Watergate words in discussing what the TWC separation could mean for TW shareholders after what he called 20 years in which deals destroyed shareholder value at record levels: "Our long national nightmare is over."

In his memo, Bewkes reiterated TW's promise to put its money where its mouth is toward the goal of becoming a lean content powerhouse.

"We're committed to investing more money than last year in the top-notch content that defines our brands -- while we run our businesses more efficiently than ever," he wrote. "I'm confident that our businesses will come out of the current economic crisis stronger and well-positioned for success."

Bewkes emphasized the need to focus on creating compelling content and distributing it worldwide, across all available platforms.

TW shares closed down 4.6% on Monday at $18.23 amid a broad market selloff, and TWC's stock fell 4.1% to $25.25.

Nathanson set a $20.50 price target on TW shares and reiterated his "market perform" rating but added, "It has been a 20-year nightmare," referring to the expensive 1989 deal that saw Time Inc. acquire Warner Communications. "The acquisition of Warners, coupled with the failure of the AOL merger, likely destroyed more value than any other company still in existence."

The analyst added that he wants a further spinoff to focus TW more completely on its content operations. "From here, we hope that the deconstruction at TW will continue, with AOL as the next asset to go," Nathanson wrote, pegging AOL's stand-alone value at $2.4 billion.

Wunderlich Securities analyst Martin Pyykkonen also argued Monday that an "AOL spinoff is still needed." He added that, while market conditions make it unlikely that TW can spin off the online unit anytime soon in an accretive deal, "the best solution, in our opinion, is to separate AOL into a separate stock class from TW, which should remove some of the negative overhang on TW's stock price."

Pyykkonen maintained his "buy" rating on TW shares, with a revised price target of $30.
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