Time Warner Special Dividend in Jeopardy?

Given the enormous yearly loss it reported on Feb. 4 amid dour projections for the media business, Time Warner (TWX) surely can't wait for the day when its cable division pays it a long-anticipated $9.25 billion special dividend as part of a full spin-off.

But that dividend may be in jeopardy if the Federal Communications Commission—in transition from the Bush Administration to the Obama Administration—doesn't approve the spin-off of Time Warner Cable (TWC) by Mar. 31. That is when the agreement between Time Warner and Time Warner Cable expires, allowing for new terms to be negotiated. In light of its own challenges, including declining subscriber growth, Time Warner Cable executives may be hesitant to hand over such a large dividend.

Waiting for FCC Approval

The proposed spin-off has been under consideration by the FCC since last summer when its chairman was Bush appointee Kevin Martin. He stepped down in January and Commissioner Michael Copps was named acting chairman in anticipation that President Obama's pick for chairman, Julius Genachowski, would eventually take over. It is unclear when Genachowski will be named officially and whether Copps would take on the Time Warner Cable spin-off matter before Genachowski's arrival. A top aide to Copps did not return calls for comment on Feb. 4.

For months speculation has swirled over how Time Warner Chief Executive Officer Jeffrey Bewkes would spend the $9.25 billion, including whether he would buy back stock or make acquisitions. During a conference call on Feb. 4, Bewkes said he expects to get regulatory approval for the spin-off "soon" and that he is confident it will get done before the end of the first quarter. Time Warner Cable CEO Glenn Britt also said on his earnings conference call on Feb. 4 that he believed the spin-off would be completed in the first quarter. The IRS must also approve the deal.

Time Warner reported an operating loss of $16 billion for 2008 on a slight boost in revenues to $47 billion. The company previously announced it would be taking a writedown of $25 billion on the reduction in value of some of its properties, including $15 billion for Time Warner Cable. Time Warner shares were off 1.3%, to 9.65, in midday trading on the New York Stock Exchange.

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