Time Warner has chosen to effect the planned separation of Time Warner Cable into an independent company in the form of a spinoff, the entertainment giant said late Thursday.
It had previously said it could spin off its 85 percent stake in TWC to shareholders, offer to exchange TWC shares for TWX shares or use some combination of the two.
In the spinoff, TW shareholders will get a certain, to-be-determined number of TWC shares. Investors can then decide whether to continue holding both sets of shares or just focus on the cable or entertainment-centric company.
A spokesman wouldn’t say when the spinoff was likely to happen. The number of TWC shares that TW will receive in the transaction will be set later.
The separation is expected to happen this quarter.
On Wednesday, TWC had named CEO Glenn Britt to the added post of chairman, effective after the separation. Don Logan had been chairman.
According to the original separation agreement, TW had to make its decision on the type of separation by Friday. It stated that TW has five days after regulatory and other conditions have been met to elect whether to distribute TWC shares in the form of an exchange, also known as a “split,” or as a dividend, known as “a spin.” In a split, shareholders would have opted whether to exchange their shares of TW for TWC stock.
Analysts expect near-term pressure on TWC after the spin.
“Unfortunately, we expect that the massive amount of TWC (shares) being distributed will put selling pressure on the stock,” Collins Stewart analyst Thomas Eagan said in a recent report. “The actual time it may take to absorb the selling pressure is hard to predict, but we expect it could take nearly a week.”
Pali Research analyst Richard Greenfield recently cut his rating on TWC’s stock to “sell.” Late Thursday, he said the spin “will be quite disruptive” and supports his current sentiment on the stock.
Miller Tabak analyst David Joyce said the spinoff is “easier for the company and shareholders than a split or exchange offer.”
Importantly, “it was going to be a tax-free transaction in any event,” he added.
“A dividend of the TWC shares is a much simpler mechanism than an exchange,” Eagan echoed late Thursday evening. “Perhaps more important, an exchange would have required TW to buy back TW shares at a premium, essentially ‘destroying’ value.”