Monday, May 12, 2003

Garage sale at AOL-Time-Warner While oligopolies are often perceived as continually growing, sometimes they have to spin-off entities. That's especially true when an oligopoly gulps down more than it can digest, or when it pays far too much for an acquisition. Such is the case with AOL-Time-Warner, whose merger at the height of the dot-com bubble made a lot of insiders rich, but which has become a textbook case of business blundering. All the hoped-for synergy has afield to materialize, and the AOL division is losing customers and advertisers fast. Laboring under a $27 billion debt load, Time Warner is busy disacquiring pieces of its empire. Among the items on the block, with expected prices (from BusinessWeek, May 19, 2003): Comedy Central cable station (50% interest) $1.2 billion Warner Books $0.3-0.4 billion Atlanta Hawks (basketball), Atlanta Thrashers (hockey) $0.4 billion Atlanta Braves (baseball) $0.4 billion Warner Music Group CD manufacturing $1.0 billion 21% of Time Warner Cable in an IPO $2.0 billion The Comedy Central deal is the only one that has been completed to date, as Viacom became the 100% owner of the cable channel. All these dales would add up to $5.35 billion, still a small portion of the debt. Even with a positive cash flow for the next two years (estimated at $5.9 billion), there's still a lot to do to cancel out the majority of the debt. Of course, that's assuming the company gets its desired prices for the prices, no easy deal since many of these investments are dwindling in value. For example, the bidding war for Warner Books has been less than enthusiastic, and some likely candidates have already pulled out. Even the baseball and hockey sales are problematic, with other teams on the block, notably those owned by rival media giant Disney. The shortfall means other pieces may have to go, including AOL (if anyone will buy it) and the remainder of Warner Music Group (if anyone will buy it). The music group may come on the block as Vivendi tries to dump Universal Music Group. The money-making pieces of the empire -- the magazine group, HBO, Turner Broadcating, and the majority of the cable companies -- are properties the company would be reluctant to give up. The company has a hard road ahead. And its partial dissolution will benefit the competing media oligopolies, who may be able to pick up the pieces at a bargain rate. 5:27:01 PM

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