Friday, December 16, 2005

Catalyst for Time Warner?

A Wall Street Journal article on 12/14 by James Stewart asks the question "Is there some undiscovered law of nature that says TWX has to trade below $18 a share?". Seems like it at times. What will be the catalyst to move this valuable assembly of media assets to a higher valuation? Right now theTWX valuation appears to be reflecting a huge "conglomerate discount". Conglomerates must been seen as having two things in order to be appropriately valued by investors: transparency, or financial and competitive positioning reporting that allows investors to understand where money is being made and how, and liquidity, or the reassurance that the conglomerate will manage its assets like any capable investor would manage their own assets, investing in, buying, or selling assets to achieve the best possible business mix and to fully realize the value of its franchise. The icing on the cake for a conglomerate is a pervasive management culture that lives and breathes teamwork and economic value. So where does TWX stack up on these characterics. Of the must haves, transparency is a check from my distance but I can't speak for the security analysts that follow it intensely. But liquidity is a minus, so why would an investor buy TWX to manage their assembly of assets when they can buy those assets individually and do it themselves? As for the third, a wish list must have, it's a long term build for any firm created by major combinations. So the issue to my eyes is liquidity, and not liquidity driven by Carl Icahn but liquidity driven by management's own view that the timing is now right to get on with it. SEE NEXT POST FOR MORE.


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