Time Warner plans cable spinoff

By Kenneth Li

NEW YORK (Reuters) - Time Warner Inc (TWX.N) will completely split with Time Warner Cable Inc (TWC.N) by the end of the year, and receive a $9.25 billion payout, to separate its media content and distribution businesses.

The plan will break up a two-decade marriage of traditional distribution and content, a strategic combination of assets that has fallen out of favor on Wall Street as big media corporations compete with faster-moving Internet companies.

Left unanswered is how Time Warner Inc's 85 percent ownership of Time Warner Cable will be distributed to Time Warner Inc shareholders. Details will be decided closer to the closing of the deal in the fourth quarter, executives said.

The long-expected move lifted Time Warner Inc shares 2 percent in morning trading on the New York Stock Exchange, while Time Warner Cable shares rose 3.5 percent.

Wall Street has clamored for the once top media company to streamline its focus as a pure media content company -- with the Warner Bros movie studios, Time Inc magazines and Turner cable networks -- and stem a stock-price decline.

It will also leave Time Warner Inc more time to determine what to do with its AOL Internet division, whose growth has been eclipsed by Web leaders like Google Inc (GOOG.O) and Yahoo Inc (YHOO.O). Time Warner Inc has continued to discuss with Yahoo and Microsoft (MSFT.O) a transaction to sell, spin off or merge its AOL division, sources have said.

"Two independent companies will have better long-term strategic, financial and operational flexibility, something we believe is of growing importance," Time Warner Inc Chief Executive Jeffrey Bewkes told analysts on a conference call.

Investors will be eager to hear how Time Warner plans to invest the payout for the media company.

In response to a question on whether Time Warner could now consider buying cable networks, Bewkes told analysts: "That's a good area for us ... (But) We can't flash in advance what our inclinations are or what we are going to do."

But Bewkes said its content businesses will "be growing faster than currently realized in the market."

Bernstein Research media analyst Michael Nathanson said Time Warner Inc could be interested in several cable networks.

"There are several potential acquisition targets ... including The Weather Channel, Scripps Networks Interactive, or Discovery," he wrote in a research note.

CABLE FLEXIBILITY

Time Warner Inc spun off a 16 percent stake in its cable division in 2007 as part of a transaction to buy cable systems from debt-laden Adelphia Communications and to be able to more easily acquire other cable companies.

With the full split, Time Warner Cable will also be free to pursue deals and investments using its stock. Time Warner Inc and its cable division have long believed the capital structure requirements for cable operators are different from a more diverse portfolio of assets, making quick decisions difficult.