Time Warner(TWX) is no stranger to spinoffs. The company once known as AOL Time Warner lost the AOL(AOL) in what has proven to be a successful spin- much more successful, certainly, than the disastrous merger, perhaps the worst in American history, which brought the two firms together. Earlier in 2009, the company spun off Time Warner Cable(TWC). And in the heady days of the Internet bubble, even before the AOL deal, the company spun off TW Telecom(TWTC), formerly known as Time Warner Telecom. Last July, we wrote about speculation that Time Warner might spin off its magazine business.
Yesterday, it emerged that Time Warner was in talks with Meredith(MDP) regarding a complex deal which would see most of Time Warner’s magazines spun out and merged into a new company containing Meredith’s magazines. The new entity would borrow a substantial sum of money and distribute it to Time Warner which would then spin off its stake to shareholders. The deal would leave Time Warner with news-oriented magazines such as Time, Sports Illustrated and Fortune, while giving the new firm titles such as People to join Family Circle. Meredith would be left with its broadcast television operations.
Though the structure of the deal is not mentioned in reports, it appears that the structure being contemplated is a reverse Morris Trust. The fact that Meredith will be spinning off part of its business adds complexity and it’s not entirely clear how the mechanics will work, nor what the tax consequences will be. This is a good opportunity for Time Warner to monetize a declining asset while allowing shareholders to profit from any future upside, and to do so in a tax efficient manner.
Disclosure: The author has no position in any stock mentioned
- Time Warner Said to Be in Talks to Sell Magazine Division (bloomberg.com)
- How a Meredith-Time Warner Joint Venture Would Work (dealbook.nytimes.com)
- “Serious Buyer” In Talks For Time Warner Publishing Unit (blogs.barrons.com)
- Time Warner in talks with Meredith on magazines: source (Reuters) (newsdaily.com)
- Time Inc Magazines Could Fetch $2.9B: Analyst (m.deadline.com)
- Time Warner in Talks to Sell Off Majority of Magazines (mediadecoder.blogs.nytimes.com)
- Time Warner To Shed Magazine Division: REPORT (valuewalk.com)