Barron’s: Magazine Spinoff Good For Time Warner, But Stock Price Is Too High Right Now

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In June, 2012, Barron’s wrote a favorable article about the prospects of Time Warner(TWX).  A year later, with the stock up 63%, Barron’s revisits, and though it continues to like the company’s prospects, it concludes that the stock has gotten ahead of itself.  Barron’s does believe that the upcoming spin off of Time Warner’s magazine publishing division will be a big positive for the company:

Another plus: its plan to spin off its beleaguered magazine assets, which include once-prized titles such as Time, Fortune, and People.

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The spinoff will leave Time Warner more of a growth company focused on television and movie entertainment. Post-spinoff, it should have about $27 billion in annual revenues and roughly $6 billion in operating income. Operating income at the entertainment portion grew at about a 4.7% rate in 2112, while publishing fell by 25%.  Few details have been released about the spinoff other than that it will be a tax-free transaction for shareholders.

When we last wrote about the spinoff, Time Warner was in discussions with Meredith(MDP) to merge most of its magazines into Meredith. Soon after that, the talks broke down, and Time Warner indicated it would spin off its entire magazine division as an independent company. While some of Time Warner’s magazine, most notably People, are still quite profitable, the fundamentals of the industry are declining quickly. Time Warner may find it difficult to structure a transaction which creates a viable independent company. As we have seen in several cases, and as we speculated about regarding the Orchard Supply bankruptcy and Sears Holdings(SHLD), spinoffs that are not viable to begin with may leave the parent liable for debt they thought had been disposed of.

Disclosure: The author holds no position in any stock mentioned

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