Time Warner's Double Play

It's not every day that a company simultaneously weans its cable subsidiary and divests its baseball team. But that's precisely what Motley Fool Stock Advisor pick Time Warner (NYSE: TWX  ) did on Tuesday, in what surely was the company's most frenetic period of activity in many moons.

In a marginally complicated transaction, Time Warner Cable effectively became a public company on Tuesday, when the reorganization plan of former cable operator Adelphia took effect. Tangential to the plan, Time Warner distributed 156 million of its shares -- about 16% of the company's total share count -- to Adelphia stakeholders. In exchange, and in conjunction with cable industry leader Comcast (Nasdaq: CMCSA  ) , Time Warner is divvying up Adelphia franchises. The combined Comcast-Time Warner acquisition of Adelphia was completed in the middle of last summer, but legal challenges have kept it from going through until now.

Because the distribution of its shares was tied to the Adelphia reorganization, Time Warner was able to withdraw its S-1 registration for a traditional initial public offering of a portion of its cable company. Time Warner owns roughly $6 billion worth of former Adelphia assets.

Time Warner Cable has been trading on the NYSE Group's (NYSE: NYX  ) New York Stock Exchange since January on a "when-issued" basis, under the symbol "TWCAV." Sometime in early March, it will begin regular trading on the exchange under the symbol "TWC." Even then, its parent company will still own the majority of the cable group.

Adelphia filed for bankruptcy reorganization nearly five years ago, after disclosing that its founding Rigas family had saddled the company with $2.3 billion of off-balance-sheet-debt. Founder John Rigas and his son Timothy were convicted of fraud and sentenced to 15 years and 20 years in prison, respectively. They are currently free while awaiting appeal.

Time Warner Cable, as a separate company, will be able to participate more directly in the strength the cable industry has evidenced for the past year. Aside from Comcast, other publicly held cable companies include Cablevision (NYSE: CVC  ) and Mediacom (Nasdaq: MCCC  ) . The industry's strength largely stems from its "triple play" offerings of digital video, high-speed data, and telephone service. That combination has been difficult for rival satellite providers DirecTV (NYSE: DTV  ) and Echostar (Nasdaq: DISH  ) to contest, and the cable operators have experienced substantial share price appreciation.

Turning from TV to baseball, Time Warner divested the Atlanta Braves, which it acquired in the 1990s with its purchase of Turner Broadcasting, to Liberty Media (Nasdaq: LCAPA  ) . In the exchange, which also included payment of $1 billion in cash to Liberty, Time Warner received 60 million of the approximately 171 million Time Warner shares Liberty holds, cutting Liberty's stake in Time Warner from 4% to approximately 2.6%.

Amid this flurry of activity, I'd like to point out two personal observations. First, I like and respect Time Warner CEO Robert Parsons' performance in paring the company's non-core assets. And second, Time Warner looks like a superb operator that should bask in the cable industry's strength for years to come.

For related Foolishness:

Time Warner is a Motley Fool Stock Advisor pick. See Tom and David Gardner's full list of superior stock selections with a free 30-day trial.

Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments or questions. NYSE Group is a Rule Breakers pick. The Fool has a disclosure policy.


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