March 6, 2013 / 11:57 PM / 4 years ago

UPDATE 1-Time Warner to spin out its magazine unit

By Jennifer Saba

March 6 (Reuters) - Time Warner Inc plans to spin out its division that publishes titles like Time, Fortune and People into a separate company, ending weeks of merger negotiations with Meredith Corp.

Time Warner said on Wednesday that the process to separate Time Inc into an independent public company will likely take place by the end of the year.

In a separate statement, Meredith said it had been in talks to combine Time Inc's titles that focus on lifestyle and entertainment including People and InStyle with Meredith's titles such as Everyday Living with Rachael Ray and Better Homes and Gardens into a new publicly traded company.

"We respect Time Warner's decision and certainly remain open to continuing a dialogue on how our companies might work together on future opportunities," Meredith Corp CEO Stephen Lacy said in a statement.

Morningstar analyst Michael Corty did not rule out a future deal between the two companies. "Clearly, Time Warner did not get the right price from Meredith. I don't think this 100 percent eliminates some kind of combination with Meredith in the future," he said.

Magazines have been hit with unprecedented challenges in recent years as people turn to smart phones and tablets to read and advertisers look to other media to place dollars beside print. Investors have been pushing Time Warner Chief Executive Jeff Bewkes for years to hive off Time Inc, which is considered a slow growth, mature asset.

In 2012, revenue at Time Inc dropped 7 percent to $3.4 billion on declines in advertising and subscription sales. Operating income fell 25 percent in the same period.

"A complete spin-off 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," Bewkes said in a statement.

As the head of Time Warner Bewkes has been actively sliming down the company to just cable networks and its movie studio. He spun off AOL and Time Warner Cable, both of which now trade as independent, stand-alone companies.

Spinning out publishing assets has been a popular choice among media conglomerates. News Corp plans to separate its newspaper and book publishing assets that include The Wall Street Journal and HarperCollins from its entertainment divisions like 20th Century Fox and the Fox News Cable network.

The rationale underlying these separations is to divide high-growth assets such as cable networks from slow-growth or in some cases declining assets like newspapers and magazines.

Analysts said these moves create two companies each attractive to different types of investors. Growth investors are attracted, naturally, to the high-growth businesses, while value investors are attracted to the cash flow generation of the slower growth assets.

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