Time Warner May Cut Its Cable

Compared with how Viacom and Walt Disney have performed this year, the stock of Time Warner (TWX) is a sorry sight: It's at 34, down from a 52-week high of 461/2 in mid-October. Major shareholders are putting pressure on management to do something soon--or else. Seagram, with a 15% stake, has been after Chairman and CEO Gerald Levin to act, says one hedge-fund manager who owns a big block of the stock.

"The tom-toms are signaling that management has gotten the message," he says. "It will now undertake a serious restructuring to lift the stock and appease irate shareholders."

The restructuring will go well beyond dismantling partnerships in the entertainment division, a move already leaked to the press. Here's what some investors believe Levin and his crew will aim for: Extracting the cable operations from Time Warner Entertainment and selling them off to the likes of U S West. Analysts figure the cable operations would fetch $15 billion--just enough to eliminate Time Warner's huge debt.

U S West already has a 25% stake in Time Warner Entertainment, which owns cable-TV operations, the premium channel Home Box Office, and Warner Bros. movie studios. Toshiba and Itochu also own 12.5% of this division. Time Warner spokesman Ed Adler says any notion that the cable operations will be sold is untrue. In fact, "we've been bolstering those operations," he says. Speculation that Time Warner intends to dissolve its partnerships was greeted by investors with a big yawn.

It is, indeed, time for Time Warner to unlock values in the entertainment and publishing giant, asserts Stuart Shikiar, president of Shikiar Asset Management. He figures the sum of Time Warner's parts is getting to be worth more than the current stock price. Thus, "Time Warner has become a Warren Buffett-type stock," he says.

Shikiar figures Time Warner stock is worth upwards of 50. "It is one of the great buys in the market today."

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