December 1, 2003
Reuters

Reuters Comcast Corp. (CMCSA) and Time Warner Inc. (TWX) said on Monday they agreed to combine their cable partnerships in Kansas City, Missouri, and Texas, and to allow either company to trigger a dissolution of the combined entity after two years.

Texas Cable Partners serves about 1.2 million subscribers and Kansas City Cable Partners has about 300,000 subscribers. Time Warner, the world's largest media company, and Comcast, the No. 1 U.S. cable provider, are 50/50 partners in the ventures.

The move is a tentative step in the unwinding of a complex relationship between the nation's two largest cable operators.

In addition to the joint ventures in Texas and Missouri, Comcast owns a 21 percent stake in Time Warner Cable it inherited when it acquired AT&T Broadband last year.

Separating its business from Comcast would free up Time Warner to take its cable unit public or to use some of the proceeds from the $2.6 billion sale of Warner Music Group to acquire other cable systems.

Jeff Bray, a media analyst for money management company David L. Babson & Co., estimated the cable unit accounts for 30 to 40 percent of Time Warner's enterprise value, or the sum of its market capitalization, debt, stock and cash.

But the restructured deal fell short of what some analysts hoped would be a speedy end to the Comcast-Time Warner relationship.

"This is not the resolution most investors had been hoping for," said Paul Kim, senior media analyst at Tradition Asiel Securities. "This seems a reasonable compromise, though both sides are probably not entirely happy."

He said it probably reflects tough negotiations between the companies, neither of which wanted to let go of valuable cable systems.

Some analysts had speculated that Time Warner would sell its stake in the joint ventures to buy out Comcast's 21 percent ownership.

Both Time Warner Cable and Comcast declined to elaborate on the restructuring.

According to the new agreement, which replaces a buy-sell provision, both sides will end up with something after a split is triggered after two years.

Either party can opt to split the partnership; the company that does not trigger the split will have the choice of whether to take either the Houston system or the combined Kansas City and south Texas systems.

The remaining debt will be distributed between the two entities at the time they are split apart. Time Warner Cable will still continue to manage the cable systems for the duration of the agreement.