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NEW YORK, July 24 (Reuters) - AOL Time Warner Inc. (AOL)
could swap some cable systems with Comcast Corp. (CMCSA)
as one of several options to further unravel a complex partnership they
have attempted to untangle for years, analysts said.
Last year, Comcast and AOL Time Warner agreed to unwind the cable and entertainment venture in a deal that gave Comcast a 21 percent stake in Time Warner Cable. Comcast, the nation's largest cable operator after its purchase of AT&T Broadband, hoped to sell its stake through a possible public offering of Time Warner Cable. But AOL Time Warner's outstanding accounting issues with U.S. regulators make an IPO increasingly unlikely in the near term, opening the door to alternative arrangements. Some analysts have said the companies may consider swapping cable assets as a partial resolution. Time Warner Cable, the No. 2 U.S. cable operator behind Comcast, has a joint venture with Comcast in Kansas City and Texas -- markets in which some analysts said there could be asset swaps. "They may need more systems (than just those two) or a cash component for the entire stake," said Paul Kim, analyst at investment research firm Kim & Company. "It's all in the air. Comcast does not need cash right now but clearly it wants to be a major player in the cable and entertainment space." In a conference call with analysts on Wednesday, AOL Time Warner Chief Executive Richard Parsons said it was in "constant communications and discussions" with Comcast on a way to "unscramble the remaining parts of the egg." He said the companies were seeking ways for Comcast to exit the partnership. Parsons added his goal is to ultimately grow AOL Time Warner's cable holdings, not shrink them. A Comcast spokesman declined to comment. But a source familiar with the matter said that while the parties have been talking, asset swap discussions have not begun. LESS URGENCY BUT AN OFFERING COULD STILL TAKE PLACE After indicating earlier this month that a cable-spin off could happen by year-end, Parsons offered no clear timetable on Wednesday. Analysts said some of the urgency for an IPO has diminished, as both companies have addressed some of their balance sheet issues. Comcast recently sold its stake in home shopping channel QVC for $7.9 billion in debt and stock. AOL Time Warner sold its Comedy Central stake and DVD/CD-making unit for $1.23 billion and $1.05 billion, respectively. "Last year when AOL Time Warner was touch and go, they had to say something to keep people off their backs. Now they don't have to spin off cable," said John Tinker, analyst at Blaylock & Partner, adding that AOL Time Warner could still opt to spin-off its cable unit, possibly into another cable operator. While the absence of a cable IPO would not cripple AOL Time Warner's balance sheet, Merrill Lynch analyst Jessica Reif Cohen said in a recent research note that a spin-off could be strategically important because it would give the company a "currency" or stock with which to buy cable systems in a consolidating market. "I can't tell you, right now, whether we have a preference for one form of currency over another," Parsons said. "A lot of it depends on what it takes to get a deal done at what point in time, and frankly that point in time is not right now." Comcast has also not ruled out an offering. A Comcast executive told Reuters it has had "constructive discussions regarding the IPO," but added Comcast has clear rights that allow it to move the process forward when it wants. (Additional reporting by Kenneth Li in New York) |