Merrill Lynch Bullish On Time Warner's Cable, Internet Businesses
06/22/1999 Dow Jones Business News
(Copyright (c) 1999, Dow Jones & Company, Inc.)
NEW YORK -(Dow Jones)- Merrill Lynch & Co. Tuesday named Time Warner Inc. its "Focus One" stock pick of the week, citing the company's cable-television, Internet and digital-video-disk businesses.
Merrill Lynch analyst Jessica Reif Cohen reiterated her "buy" rating and an $85 12-month price target on the company's stock. In midday trading, shares of Time Warner (TWX) were up $1.50, or 2.2%, at $68.188.
Cohen said Time Warner is poised to benefit from "many emerging trends" within the entertainment complex.
The analyst predicted that the company will eventually restructure its cable-TV and motion-pictures unit, Time Warner Entertainment LP, in the wake of AT&T Corp.'s pending acquisition of MediaOne Group Inc. MediaOne owns about 25% of Time Warner Entertainment, which was created to raise cash to pay down debt from the 1989 merger of Warner Communications Inc. and Time Inc.
Time Warner Entertainment holds the majority of Time Warner's cable systems, the Warner Bros. movie business and the Home Box Office cable network.
With the acquistion of MediaOne, AT&T will surpass Time Warner to become the largest cable company in the country. AT&T also will inherit MediaOne's stake in Time Warner Entertainment, plus MediaOne's minority stake in Time Warner's Roadrunner high-speed Internet service.
But Time Warner has considerable leverage to rework the Time Warner Entertainment partnership. AT&T desparately wants to deliver phone service over Time Warner's cable lines and plans to begin negotiations with Time Warner once the MediaOne deal is complete.
The flurry of cable deals has driven up the value of cable companies in recent months. "Time Warner has, and should continue to, benefit from the robust valuations recent consolidation has placed on subscriber values," said Merrill Lynch's Cohen.
Time Warner began overhauling its Internet strategy earlier this year. The plan includes a move away from old Pathfinder omnibus site in favor of new Internet hubs that group its existing Web sites into different subject areas, including sports, finance and entertainment.
Some of Time Warner's most-successful Web sites are built around its Cable News Network properties, such as CNN.com and CNNfn.com. Like other big media companies, Time Warner has been said to be considering an initial public offering of its Internet business.
Time Warner, which owns a large catalog of film titles, also stands to benefit from the increasing popularity of the DVD format. So far, the selection of DVD movies is limited.
Copyright (c) 1999 Dow Jones & Company, Inc.
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