Time Warner Inc (TWX), Time Warner Cable Inc (TWC): Is This Media Giant’s Spin Off Bad News?

Page 1 of 2

Time Warner Inc (NYSE:TWX) has dropped plans to sell its magazine business and, instead, is going to spin the division off. Is this a case of unlocking the value of undervalued assets or is the company just dumping a troubled business?

A Failed Merger

Time Warner Inc (NYSE:TWX) was famously acquired by AOL, Inc. (NYSE:AOL) in what was probably one of the worst mergers in recent memory. Aside from the infighting between the two companies, AOL’s walled garden approach to the Internet was already in decline when they consummated their marriage. The two companies parted ways about a decade after joining forces.

One way of viewing the split is that it let each company focus on its core businesses. However, it was more likely Time Warner Inc (NYSE:TWX) was getting out from under a bad deal. Indeed, AOL’s shares languished amid the company’s struggle to shift to an advertising and content model after the split.

An aggressive read of AOL’s quarterly revenue trends might suggest that the top line is stabilizing. Still, it has plenty of issues and lots of Internet competition to deal with. Moreover, the AOL brand isn’t nearly as valuable as it once was.

The rally in the last year or so has provided shareholders some solace—but it was a long time in the making. Time Warner investors should keep this corporate action in mind, but would do well to avoid the AOL cast off for now.

A Strategic Separation

After the AOL split, Time Warner Inc (NYSE:TWX) separated out its cable business, Time Warner Cable Inc (NYSE:TWC). This was a strategic decision by the company to break off a cash cow business so it could focus on its higher growth media assets.

The move made complete sense for Time Warner and, unlike AOL, it has so far proven to be good for Time Warner Cable Inc (NYSE:TWC) shareholders, too. The big difference between the two deals is that the cable business was a solid one when it was broken off, unlike AOL. It isn’t surprising, then, that the stocks of the two companies took different paths.

Time Warner Cable Inc (NYSE:TWC) continues to enjoy a solid industry position. However, the market is well aware of this and has bid the shares up to a point where they look fully valued, despite a recent pullback. Some investors looking for a dividend paying company with an annuity-like revenue stream might be tempted by the 2.5% or so dividend yield, but it’s probably best to look elsewhere.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!