Posted on 06/23/2006 3:19:27 AM PDT by abb
Continuing Stock Slump Provides Fodder to Advocates of Breakup
Four months after the billionaire investor abandoned his campaign for control of Time Warner Inc., shares of the world's largest media concern are down about 10%, despite the company's increase of a planned stock buyback to $20 billion. Making matters worse, shares of several rival media companies -- News Corp., Comcast Corp. and Walt Disney Co. among them -- have risen by as much as 20% over the same period. [heard]
The stock slump leaves Time Warner as vulnerable as ever to an attack by hedge funds or private-equity firms, investors say. Mr. Icahn doesn't have any plans to jump back in the fray -- at least for now -- but the deepening gloom about Time Warner has given new currency to his view that the company should be broken up.
"For the right price, I'd be interested in a breakup," says Mark Greenberg, a fund manager at AIM Investments, which had about 1.4 million shares of Time Warner on March 31.
In 4 p.m. composite trading yesterday on the New York Stock Exchange, Time Warner's shares were down 13 cents, or 0.8%, to $17.12, giving the company a market value of about $73 billion, down $6.5 billion since February. The company's share price, based on its per-share profits, is in line with others in the sector, with a forward price-to-earnings ratio of 19.6. Analysts estimate per-share fair value at $18 to $22, based on 2006 projections.
Hopes that management will succeed in restructuring Time Warner, and boost the stock price, are partly why many analysts - including William Drewry at Credit Suisse and Douglas Shapiro at Bank of America - continue recommending the stock. Still, investors may need to be patient.
(Excerpt) Read more at online.wsj.com ...
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While the stock-price decline is due in part to Mr. Icahn abandoning his proxy fight, it also reflects concerns about the prospects for most of Time Warner's businesses. For years, investors fretted about the future of the AOL Internet division, while old-media operations like the Warner Bros. movie and television studio -- home of Bugs Bunny -- and the Turner cable-TV networks were posting robust growth.
Now, Warner Bros. and Time Inc.'s magazines are showing signs of weakness and analysts are questioning the growth potential for businesses such as Turner.
"It's not just AOL that has problems," says Richard Greenfield, managing director of Pali Research, which has a "neutral" rating on Time Warner shares and doesn't own any.
A particular concern on Wall Street is the effect digital technology will have on some of Time Warner's old-media businesses. Time Inc., for instance, is suffering from a shift in advertising dollars from magazines to the Web. In the first quarter, operating profit at Time Inc.'s publishing business fell 13% to $71 million due mainly to weakness in its international operations. Management says it is confident Time Inc.'s digital offerings will fuel growth.
Longer term, some analysts question the ability of Turner's biggest cable networks, TNT and TBS, to respond to growing consumer use of the Internet. Most major TV networks are starting to offer some programs on the Web. But to do so, they need to own the Internet rights. Since TNT and TBS rely heavily on reruns to fill their schedules, their ability to shift content to the Web is limited. Time Warner says TNT and TBS produce some of their own content -- such as the successful show "The Closer" -- and plan to do more.
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My opinion is Web TV will be a bust. Who needs it ? You can sit on your comfortable couch or sit in your not so comfortable computer chair. Why the heck would anyone want to watch TV on their computer ?
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