Time Warner: Set To Spin Off The Magazines?

Time Warner is back in the rumor mill, after a brief break from buyout stories and other speculation. Some investors with big stakes in the media and entertainment giant believe a restructuring is in the works--and they suspect it will involve publishing operations.

According to these pros, Time Warner discussed selling most of the company's magazines, including flagship Time, with mogul Rupert Murdoch a few months ago. The idea was that Murdoch might be interested in Time and the other magazines for his News Corp. But talks with Murdoch didn't produce agreement, say the sources.

Now, the buzz is that management intends to sell part of its publishing operations to the public instead, possibly 40% of the unit. The division has been a solid performer for the company, and lately management has been reminding analysts of its hefty gains.

But spokesman Ed Adler says Time Warner Chairman and CEO Gerald Levin denies "all aspects of the rumors" and calls them "absurd." News Corp. spokesman Bill Sorenson declined comment as a matter of policy.

One analyst estimates the Time Inc. publishing division, including Life, Fortune, People, and Sports Illustrated, is worth $4.5 billion to $5 billion. He calculates that it generated pretax and predepreciation earnings of $425 million last year. In 1993, the division accounted for 22% of the company's total revenues of $14.5 billion.

PLATEAU AHEAD. Publishing operations "should remain Time Warner's best-performing division over the near term," says Jessica Reif of Merrill Lynch. She notes that second-quarter publishing revenues were $851 million, up 4% from a year ago. Circulation rose 3%, and advertising jumped about 9%, with impressive results coming from People and Southern Living.

Reif says Time Warner is "superbly positioned." But she sees no significant cash-flow growth, "because the company is spending billions of dollars to upgrade its cable plant and could spend $200 million to $300 million or more to develop a fifth broadcast network."

The company has repeatedly denied it would put publishing operations on the block. It also rejected stories it was thinking about a merger. Such tales stemmed from Seagram's acquisition of a 15% stake in the company. Seagram President Edgar Bronfman Jr. has denied any hostile intentions toward Time Warner. But it's hard to imagine that the Bronfmans are happy with how their investment has stayed under water. And they also couldn't be thrilled by the stock's lackluster performance: from 44 a share in March to its current 38.

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