Time Warner CEO Jeff Bewkes pulled back the curtain to reveal that the $1.4 billion in debt and loans that will be assigned to Time Inc. in its spinoff will be used in large measure to pay its Time Warner parent for the British publishing subsidiary IPC Media.
The British publishing company is still technically carried on Time Warner’s books through a wholly owned subsidiary — and Bewkes is making the soon-to-be-independent publishing unit pay dearly.
The move should spike for the short term the speculation that the British division was going to be sold off to pare down debt of a new Time Inc.
Any funds that are left on the table between the amount of debt raised and the price paid for IPC won’t get into the hands of Time Inc. CEO Joe Ripp. Instead, it will be used to provide a one-time special cash payment to stockholders of Time Warner.
Ed Atorino, a media analyst for Benchmark, thinks the debt and loan on Time Inc.’s books is a “pretty good story to tell for Time Warner.”
But carrying the debt may not be the best thing for Time Inc. and its shareholders. “Publishing companies are not going to get a good deal. You have to pay the price for the underlying trends in publishing,” said Atorino.
Dave Novosel, a senior analyst at Gimme Credit, thinks the debt load will be too burdensome for a company with only about $400 million in Ebitda. “They will still get this deal done, but it is less than ideal,” said Novosel. “Time Inc. in the next year or two will have to do something in the form of a merger or acquisition away from the standard printed magazines,” the analyst said. “This really constricts their financial flexibility.”
IPC was picked up in August 2001, in the days of global expansion, for $1.6 billion.
Obviously that global expansion plan did not work out too well, as the parent company is now slimming down into a movie and cable giant focused on core properties like HBO and Warner Bros. while it tries to finally get out of the declining publishing unit.
Time Warner did not reveal what IPC’s selling price will be and how much will be left over for the one-time dividend.
The magazine publisher’s next big financial disclosure should come in the next few weeks in the form of a modified Form 10 filing in advance of Time Warner’s next quarterly earnings report on April 30.