This deal is made considerably sweeter by the prospect of a significant post-transaction special dividend. According to sources familiar with the discussions between Time Warner and Meredith, the new company may take out a credit facility of as much as $1.7 billion in order to pay out this dividend. While an exact per-share figure has not yet been quoted, a $1.7 billion special dividend paid out equally among Time Warner’s 935 million outstanding shares would produce a per-share windfall of about $1.90.
Complications and Legal Issues
This deal will be subject to approval votes from Time Warner Inc (NYSE:TWX)’s board of directors and shareholders. Since the terms of the deal have not yet been finalized, its prospects for approval remain unclear. However, it is obvious that the print media industry is suffering through a period of secular decline. At the same time, Time and Sports Illustrated have a robust online presence that may enable them to weather the ongoing storm better than supermarket-shelf print publications. As such, this sale might actually be a savvy move. Since this fact will not be lost on Time Warner’s shareholders, most market-watchers expect the deal to pass muster.
Long-term Outlook and Prospects
This proposed spin-off is not likely to solve all of Time Warner’s problems. The company faces challenging market conditions for its media business and continues to suffer from the after-effects of its ill-advised merger with America Online (AOL). To make matters worse, signature properties like CNN have struggled to find an audience in an increasingly fragmented media environment.
Indeed, many market observers believe that Time Warner should take an even more aggressive approach to cut its losses. This would involve spinning off its entire Time division, divesting from print media entirely, and focusing on growth properties like Time Warner Cable.
Time Warner Inc (NYSE:TWX)’s problems are not unique. Competitors like the The New York Times Company (NYSE:NYT) and News Corp (NASDAQ:NWSA) face similar challenges. In fact, News Corp (NASDAQ:NWSA) is about to spin-off of its own print media and “old” journalism properties in order to focus on its television and digital businesses. News Corps’ print media assets to be spun-off includes big brands like the Wall Street Journal and the Sun Newspaper in the UK. It was recently announced that this spin-off will receive $2.6 billion is cash and no debt. Meanwhile, The New York Times Company (NYSE:NYT) has been mulling significant asset sales for years. The New York Times Company (NYSE:NYT) owns its trademark paper, plus other publications such as the International Herald Tribune, the Boston Globe, the Worchester Tribune & Gazette, in addition to their websites. They have a business that licenses and distributes electronic archive databases. In general, the print media space continues to consolidate in the face of declining readership figures and dwindling profits. As such, investors should assume that this latest spin-off will occur in some form.
As it currently stands, the proposed spin-off looks likely to provide Time Warner Inc (NYSE:TWX)’s shareholders with a juicy special dividend that could amount to 3 or 4 percent of the company’s market capitalization. Although its exact terms have not yet been finalized, it may provide a significant arbitrage opportunity as well. While the spun-off division’s long-term prospects are not yet clear, the short-term benefits of this deal are.
The article Spinning Off the Old and Keeping the New originally appeared on Fool.com and is written by Mike Thiessen.
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