Friday, December 16, 2005

Catalyst for Time Warner? Part 2

So to continue, enough of the textbook talk. Conglomerates created by large mergers sometimes are under the impression that the resulting businesses somehow all magically work together, have synergy etc., just because they belong to some common industry group. That's rarely so. CEO Parsons has apparently been the right person at the right time for TWX, an executive with the skill and demeanor to deal with the immediate needs and, importantly, the significant internal strife of the company a few years ago. But progress has been made on those fronts, and now it is possible to begin to do something. Manage the assets, express a point of view about how these businesses all work together. Is there common distribution(No), are the skill sets complementary(not really), does Time Warner as an overarching brand mean anything(not to consumers I guess). So is it just capital strength, the capacity to be global, and the ability to pay really really well that defines the reason for Time Warner. Well those aren't all bad, but my guess is that if the market sees a direction through real active management of the company's assets, THAT IS THE CATALYST. Even little stuff will help. I read somewhere that "management is mulling the sale of the Atlanta Braves". My goodness, SELL IT. Those are rich men's hobbies and fortunately this one is valuable, but not locked in a conglomerate. There has to be lots of pruning that can be done. Feelings will be hurt, fiefdoms will be challenged, and the argument will be made on each one that it's not going to make that much difference. Right, possibly, if you're talking individually in EPS terms, but wrong if you're talking in terms of changing management culture and market perception. And as far as EPS, little actions added together over time can of course be material. Then there's AOL, a big one. Would a joint venture with Google or Microsoft make it more manageable? Wouldn't, in fact, TWX be ceding real management control to the experts, Google or Microsoft. Why wouldn't investors just buy Google or Microsoft and let TWX sit with an illiquid stake? I may be missing something, but what. Spin off AOL, Sell AOL, what's the linkage to TWX, what's the rationale to the significant management commitment when there are so many other potential growth assets within TWX that are not in AOL's very gradual wasting away mode. Other big M&A possibilities can be contemplated as well by management and by the market, and valued by the market even if they never happen. But they cannot be contemplated and valued if management does not walk the liquidity walk.

Finally, there is a portion of the market that believes in the possible positive scenario. TWX's two largest shareholders are Capital and Alliance, great large value investors, and it is sort of amazing that a company that represents 0.73% of the S&P 500 and has TWX's performance wouldn't have indexers at the top of their shareholder list. Also among the top ten shareholders Dodge and Cox, Wellington, and Morgan Stanley(which added 30mm shares to their position in the third quarter). I view this as good company to keep.


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