Time Warner Inc. (TWX) announced that as a part of planned separation, Time Inc. will raise $1.4 billion in funds by entering into a secured term loan facility and by offering unsecured senior notes.
Time Inc. will utilize the proceeds to acquire U.K. publishing business, followed by payment of a special cash dividend to the parent company. Currently, U.K. publishing business is owned by another subsidiary of Time Warner.
The 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.
In 2013, in a strategic attempt to unlock the value of its core business activities, Time Warner had decided to spin off Time Inc. into a separate, publicly traded company.
Time Inc. has had a dismal run in the last three years. Total revenue has been on declining trend given fall in print advertising and newsstand sales. The division also is the least contributor to the Time Warner’s total revenue.
The move to vend Time Inc. followed negotiations between Time Warner and Meredith Corp. (MDP) to create a magazine-based company which 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.
The decision would be accretive to the shareholders of Time Warner in the same fashion, when this diversified media conglomerate divested Time Warner Cable and AOL Inc. into independent companies.
Notably, in Feb 2014, Comcast Corp. (CMCSA) has made a proposal to acquire Time Warner Cable for roughly $45.2 billion. However, the deal is expected to face tough scrutiny and close monitoring by the regulator, Federal Communications Commission (:FCC).
Currently, Time Warner carries a Zacks Rank #3 (Hold).