Elder kicks off his guest-blogging stint over at Mixed Media in fine style
this morning, with the story that Time Warner is thinking about an IPO of its
magazine-publishing arm, Time Inc. I’m not convinced this will happen, for a
number of reasons.
- Sean sources his story to "people in the banking business", rather
than anybody at Time Warner. Which means that this could be an attempt by
bankers to get Time Warner brass to take the idea seriously. Such attempts
do actually work, some of the time. But they can also backfire, as well.
- It’s not clear how much money Time Warner might be able to raise by selling
Time Inc, but it’s unlikely to be enormous in the context of a company with
an enterprise value of over $100 billion. The magazine-publishing arm has
some very profitable franchises, but it’s also – and possibly more importantly
– a source of prestige. Without Time Inc, Time Warner becomes a failing
internet company (AOL) with a cable company (Warner Communications) attached.
The only vaguely glamorous bit of the company would be Warner Brothers.
- Even if the proceeds of an IPO wouldn’t be enormous, the profits from Time
Inc are very useful to Time Warner right now. Last
quarter, Time Inc accounted for 11% of Time Warner’s sales, but 24% of
Time Warner’s net income.
- Finally, an IPO just doesn’t make a lot of sense as a way of selling Time
Inc: stand-alone magazine publishing companies don’t tend to stand alone for
long. If Time Warner were really serious about selling Time Inc, it could
probably get more from a strategic buyer than it could from an IPO –
assuming, of course, that the buyer could line up the financing right now.
If it couldn’t, then maybe it would make sense for Time Warner to hold off
on the divestiture until credit markets become a bit more liquid.