Time Inc. on the Block? Time Warner Says 'No' (posted 3/29)

Long-time rumors that Time Warner may sell its publishing division came to a head this week when Forbes.com reported that news of possible sale of Time Inc. sent Time Warner shares up on Monday. But a source told Folio: Alert today that, although the future of Time Inc. was unclear at one time, Time Warner officials have recently said they plan to remain in the publishing business. "It's absolutely not happening," said the source. "Time Warner thinks publishing is a great business to be in and plans to stay there."

Time Warner spokesman Keith Cocozza also said the Time Warner concurred. "Corporate has worked very closely to help Time Inc. develop its digital strategy," he said. "And Time Inc. has some of the strongest Web sites in their space. So we don't have plans to spin-off or sell Time Inc."

The latest sales rumors came from Bear Stearns analyst Spencer Wang, who upgraded Time Warner shares to "outperform" from "peer perfom" explaining that the company could improve share value by speeding up its restructuring over the next 12 to 18 months. The news sent the blogosphere buzzing.

According to Forbes.com, Wang wrote in a client note that one possible catalyst is a divestiture or major restructuring of Time Warner's publishing division. The company recently sold its Time4Media and Parenting divisions to the Bonnier Group, which merged the divisions with its own World Publications division. Time Inc. spokeswoman Dawn Bridges told Folio: Alert that a sale of Time Inc. would be up to Time Warner and declined further comment.

Reed Phillips, managing partner of media banking firm DeSilva + Phillips said a sale of Time Inc. is not out of the realm of possibility and certainly would net a big selling price. "I don't think it's preposterous to think that they would consider a sale," he said. "I wouldn't say they would benefit from the decision to sell, but they would be able to allocate the money they receive from Time Inc. in other ways, like to pay down debt or to move into other markets with other growth opportunities or to move into markets that Time Warner is more comfortable in."

Phillips called Time Inc. the preeminent publishing brand and said that Time Warner's sales expectation would be very high. He said the recent sale of the Time4 and Parenting groups and Time Inc.'s digital strategy makes the company a very attractive buy. "It would be very much coveted by buyers," he said. "If you look at the top 10 magazine brands, they probably have five of them. It's just a powerhouse of brands and properties. And it's something that could never be replicated. You have to acquire Time Inc. to get it."

Phillips said he wouldn't be surprised to see the company command a sales price upward of 15X-EBITDA. Time Warner does not break out EBITDA in its earnings. But in 2006, Time Inc. had operating income before depreciation and amortization of about $1.09 billion. Phillips said he believes EBITDA would be very close to that figure.