AT&T Plans Offering of Time Warner Entertainment Stake

AT&T Corp., dissatisfied with AOL Time Warner Inc.’s proposal to pay $9 billion to $10 billion for AT&T’s 25.5% stake in T ime Warner Entertainment, is expected this week to lay the groundwork for a public offering of its stake, The Wall Street Journal reported Monday, citing people familiar with the matter.

The two sides had made substantial progress in the past few weeks and had hoped to sign a deal by now, after months of on-and-off negotiations. Currently, AOL is offering $9 billion to $10 billion to buy out AT&T’s stake. But with that price, AOL is also looking for several side agreements related to cable systems, Internet access and programming to be included as part of a “bundled” deal. AT&T (T) is balking at AOL Time Warner’s (AOL) demands. The two sides continue to negotiate but remain far apart on the valuation for these accords.

TWE, owned 74.5% by AOL, houses most of Time Warner Cable as well as Warner Bros. Film studio and Home Box Office, the premium cable-movie network.

AT&T’s primar y leverage in the negotiations is its right to register its TWE stake for sale in a public offering; it has a 60-day window every 18 months to register at least part of its stake for sale. The current window ends Wednesday, and AT&T is expected to registe r its stake before then.

People close to the situation caution that an IPO of the TWE stake isn’t likely to occur, even if AT&T does exercise its rights. But triggering the registration rights means the two sides have to hire an investment banker to value AT&T’s stake in TWE. AT&T, which must sell the stake for regulatory reasons, believes it has a right to force AOL to pa y the appraised value — though AOL doesn’t believe it can be forced to buy the stake in this situation.

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