Time Warner Inc. (NYSE:TWX) and Time Warner Cable Inc. (NYSE:TWC) has announced that their respective boards of directors have approved an agreement that will result in the complete legal and structural separation of the two companies.
“This is the right step for Time Warner and Time Warner Cable stockholders. After the transaction, each company will have greater strategic, financial and operational flexibility and will be better positioned to compete. Separating the two companies also will help their management teams focus on realizing the full potential of the respective businesses and will provide investors with greater choice in how they own this portfolio of assets. We’re bullish on Time Warner Cable’s prospects, but its strategic goals and capital needs are increasingly different from those of our other businesses ,” Jeff Bewkes ,Time Warner President and Chief Executive Officer said .
According to the settlement ,Time Warner exchanges its 12.4% interest in TW NY Cable Holding Inc., a subsidiary of Time Warner Cable, for 80 million newly issued shares of Time Warner Cable’s Class A common stock – increasing Time Warner’s ownership stake in Time Warner Cable’s common stock from 84% to 85.2% .
“Today’s announcement marks the next important step in Time Warner Cable’s evolution as a stand-alone, public company. In a single transaction we increase our strategic and financial flexibility, simplify our capital structure, enhance the public float and liquidity of our stock and return substantial capital to our stockholders. Importantly, we expect to accomplish all of this while maintaining solid investment-grade credit ratings. Paying a sizeable, one-time dividend is a reflection of our continued confidence in our growth prospects. Our separation from Time Warner also enhances our ability to compete aggressively and perform well in a highly competitive environment by delivering the innovative telecommunications services that our customers need, while making prudent investments to deliver continued value for our stockholders ,” Glenn Britt, Time Warner Cable President and Chief Executive Officer said .
Time Warner Cable declares a one-time dividend to all of its stockholders of $10.27 per Time Warner Cable common share – a total of approximately $10.9 billion – payable immediately prior to completion of the separation.
According to the agreement , Time Warner Cable expects to fund the one-time dividend through its existing revolving credit facility and $9 billion from a new, committed two-year bridge term financing from a syndicate of banks. In addition, Time Warner has agreed to provide a commitment for a supplemental two-year term loan of up to $3.5 billion to enable Time Warner Cable to repay the bridge financing at its maturity, in the unlikely event Time Warner Cable has not replaced the bridge financing with long-term financing. At the completion of the transaction, Time Warner and Time Warner Cable both expect to have solid investment-grade credit ratings.
“Once the transaction is completed, Time Warner will have a streamlined portfolio of leading businesses focused on creating and distributing our branded content across traditional and digital platforms worldwide. Our company will also have increased flexibility in its capital structure. We’ll continue to balance investment opportunities against the benefits of returning capital directly to our stockholders, within a disciplined financial framework intended to maintain solid investment-grade credit ratings,” Jeff Bewkes said.