Time Warner to Spin Off Time Inc. Publishing Unit

2:55 PM PST 03/06/2013 by Paul Bond
Time

The company had been engaged in talks with Meredith Corp. to spin off its magazines.

Time Warner on Wednesday announced it would spin off its magazine unit, Time Inc., into an independent and separately traded company that would house iconic publications such as Time, People and Sports Illustrated.

The company said Time Inc. CEO Laura Lang will leave the company after the spinoff and once a successor has been named.

“Laura indicated to me that we should find a different kind of CEO for this new public company, and I respect her decision,” Time Warner CEO Jeff Bewkes said Wednesday.

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The conglomerate had been exploring a sale of several of its more female-oriented magazine titles to Meredith, publisher of Better Homes and Gardens, or another suitor. Analysts were interpreting Wednesday's decision as an acknowledgment it could not get what it deemed a fair price for the assets.

The split-off strategy is similar to the one Rupert Murdoch is pursuing at News Corp., where its publishing assets, along with its education business, will retain the News Corp. moniker and a new company containing the TV and film assets will be named Fox Group.

Although the move by News Corp., now mirrored by Time Warner, is ultimately geared toward rewarding stockholders, Time Warner shares have outperformed News Corp. shares since News Corp. announced in June its intention to split it into two. Time Warner stock has advanced 49 percent since that time while News Corp. is up only 37 percent.

Time Warner, though, has been down this road before and has at least a measure of success. It completed a spinoff of Time Warner Cable four years ago, and stock in that company -- which trades on the New York Stock Exchange under the symbol TWC -- hasn’t budged since. In late 2009, Time Warner spun off AOL, and those shares are up 73 percent since then.

“After a thorough review of options, we believe that a separation will better position both Time Warner and Time Inc.,” Bewkes said on Wednesday. “A complete spinoff of Time Inc. provides strategic clarity for Time Warner Inc., enabling us to focus entirely on our television networks and film and TV production businesses, and improves our growth profile.”

Time Warner made its announcement after the closing bell Wednesday. During the regular session, the stock rose 1 percent to $55.46; after hours, it was up another 79 cents.

The proposed transaction should be tax-free to Time Warner’s existing shareholders and it should be concluded by year’s end.

After the split, said Bewkes, “Time Inc. will also benefit from the flexibility and focus of being a stand-alone public company and will now be able to attract a more natural stockholder base. As we saw with the prior spinoffs of Time Warner Cable and AOL, we expect the separation will create additional value for our stockholders.”

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While spinning off AOL more than three years ago undid one of the great disasters in U.S. corporate history -- the 2000 merger of Time Warner and AOL that eventually led to a $100 billion write-down -- the move to divorce Time Inc. and Warner Communications could be viewed by old-timers within the company as far more distressing. The $14 billion deal that created Time Warner in 1990 has for years almost universally been hailed as a stroke of genius on the part of Steven Ross, the company's beloved first CEO who died two years after the merger.

Bewkes did not say Wednesday what the name of the remaining company will be once Time Inc. is split off.

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