Time Warner (TWX) Bigger Than Expected Cable (TWC) Spin-Out Dividend ($2.50+/Share)

Time Warner (TWX) expected to release details of Time Warner Cable (TWC) spin-off today. Key points are a $9.25 billion dividend ($10 per TWC share, $2.58 per TWX share) back to Time Warner and a reduction of Time Warner debt load by two-thirds. Analysts had expected a smaller dividend ($6ish), so this is positive for TWX holders. WSJ:

As part of the separation, Time Warner — which holds an 84% stake in Time Warner Cable Inc. — is set to reap a $9.25 billion windfall from a special $10-a-share dividend to be paid by the cable company, according to people familiar with the situation…

With the split, Time Warner is losing a major generator of cash. But cutting loose the cable company has big benefits. It allows Time Warner to slash its $34.6 billion debt load, which includes cable debt, by two-thirds. Time Warner Cable has net debt of $13 billion and will borrow to pay the $10.9 billion dividend. Time Warner could use its windfall to cut its debt further, buy back shares or make an investment…

Several analysts had anticipated a one-time dividend as part of the separation, but of a lower sum. In a research report last month, Citigroup analyst Jason Bazinet predicted a $6-a-share dividend, which implied a debt ratio within the 3.25 range the company has been targeting. Time Warner Cable will likely tap its strong cash flow to pare its debt.

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