Time Warner has bitten the bullet to release Time Warner Cable from its clutches, but in the process it will extract a hefty $9.25 billion one time fee in the form of a dividend from the cash generative cable operator. It has set up loans and guarantees to make sure Time Warner Cable has the wherewithal to make it as a separate company, and in total the cable operator will have to find $10.9 billion in dividends for Time Warner and its other 15% of shareholders.
The dividend will be paid out of an existing revolving credit facility and a new $9 billion, two-year bridging finance which TWC should be good to renegotiate into long term debt, and it can gradually pay down over the next two years. There was a lot of rhetoric in the announcement about both companies having greater, flexibility and being better able to compete. We think that TWC has all the problems that Comcast has, except it’s half the size, and does not have the market dominance.
The deal is expected to close in the fourth quarter, subject to a favorable Internal Revenue Service ruling on its tax treatment as well as regulatory reviews and local franchise approvals. At some stage it will perhaps develop a name and brand of its own.