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Update -- Time Warner May Spin Off Publishing Business

Updated Jun 19, 2013, 04:55pm EDT
This article is more than 10 years old.

Time Warner shares jumped Monday on hopes that the media giant might be able to unlock more value through restructuring, possibly by selling its publishing unit.

Bear Stearns analyst Spencer Wang upgraded Time Warner to "outperform" from "peer perform" Monday. Wang explained that the company could improve share value by speeding up its restructuring over the next 12 to 18 months.

Wang wrote in a client note that one possible catalyst is a divestiture or major restructuring of Time Warner's publishing division. The company has already sold a number of its magazine and publishing assets recently.

Further moves make sense for the company since the division lacks synergies with Time Warner's "other video centric businesses," said Wang. Also, a divestiture would shed a publishing segment that is dragging down Time Warner's growth rate and reduce its exposure to the challenges facing the industry.

Wang said that a levered spin of the publishing division to Time Warner shareholders appears the most beneficial deal. The other options, a full or partial sale, would hit the company with a large capital tax. Also, further partial sales, like the company's previous sales of magazines like Field & Stream, would hurt economies of scale.

Wang said another catalyst for the stock is a "strategic event at AOL to unlock value." AOL already announced major changes last year to transition from a pay service model to free, ad-supported content. (See: "AOL Shakeup Continues.")

But further changes might be coming since Google's partial ownership of AOL will kick in July 1, 2008. In December of last year, Time Warner sold 5% of AOL for $1 billion. (See: " Time Warner Picks Its Partner.")

Wang believes this could cause Time Warner to revisit AOL's ownership structure, especially since shareholders seemingly undervalue that portion of the company. Wang pegged the most likely outcome of a major move on a merger with another leading web property.

Wang explained that such a strategic partner would help realize the full value of AOL while also providing strategic benefits -- like increased traffic -- and up Time Warner's online exposure.

Shares of Time Warner were up 31 cents, or 1.6% to $20.11 in Monday afternoon trading.