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AOL to Regain Cable Business

BY Admin  August 21, 2002 at 12:00 PM EST

AOL said it would purchase AT&T’s stake in the Time Warner Entertainment partnership, which includes the Warner Bros. film studio, the Home Box Office service and other programming and entertainment businesses.

AT&T owns a 28 percent stake in Time Warner Entertainment, a venture created by the former Time Warner in 1992.

The buyout allows AOL Time Warner to regain full ownership of TWE’s leading cable properties like TV channels Comedy Central, Court TV, as well as the WB broadcast television network.

AOL Time Warner said it would restructure its cable assets as a new subsidiary called “Time Warner Cable Inc,” which will include all of AOL Time Warner’s 12.9 million cable customers nationwide.

The payout is expected to include $2.1 billion in cash, about $1.5 billion of AOL Time Warner stock, as well as a 21 percent stake in the new Time Warner Cable Inc. subsidiary.

A third company entered the reshuffling deal as well. Comcast, the nation’s third-largest cable TV operator, agreed to acquire AT&T’s broadband unit — which owns AT&T’s TWE stake — in December 2001. If its deal to buy AT&T Broadband is approved as expected before the buyout, the payout will go to Comcast.

As part of the three-way deal, Comcast said it would make America Online’s high-speed Internet service available on Comcast’s new broadband network.

Although no company affixed a set value to the deal, the transaction is estimated to be worth around $8.5 and $9 billion.

AOL said it planned to sell part of its stake in Time Warner Cable Inc. through an initial public offering shortly after the exchange is finalized. The move would allow the media giant to pay down the debt incurred in making the $2.1 billion cash payment, AOL executives said.

The cable deal will also enable the company to “simplify [its] overall structure, while maintaining the integrity of our balance sheet,” AOL chief executive officer Richard D. Parsons said.

Parsons said the deal would also boost the flagging America Online unit by making it easier for millions of customers to connect to the Internet service through high-speed cable modems.