AOL Time Warner Investors Seek Additional Disclosure by Parsons
By Aimee Picchi
New York, April 13 (Bloomberg) -- AOL Time Warner Inc. investors say additional disclosures on partnerships and debt in its first-quarter results this month may help boost shares of the world's biggest media company from a three-year low.
The stock rose 50 cents to $20.10 yesterday after falling to $19 on Thursday, the lowest since November 1998. The shares have tumbled 59 percent since America Online Inc. bought Time Warner Inc. in January 2001 for $124 billion.
AOL Time Warner's value has dropped because the company surprised investors with disclosures about debt levels in the AOL Europe unit it's acquiring and the possible end of a cable alliance with the Newhouse family. The company needs to meet revenue and profit targets and improve its disclosure about debt and the status of its cable and Internet partnerships, investors said.
``It would help to have a conference call to just explain everything and put all the issues on the table,'' said Alan Loewenstein, co-manager of the John Hancock Technology Fund, which owns more than 1 million shares of AOL Time Warner. ``You would like to see that they have conviction with the second quarter and that they have good cash flow'' when the company reports first- quarter results on April 24.
AOL Europe
Until then, the stock is unlikely to rise, investors said.
AOL Time Warner last month said in a regulatory filing that it's in discussions with the Newhouse family, owners of Advance Publications Inc., which may result in the family pulling out of a partnership. That could mean AOL Time Warner would lose 2.3 million, or 18 percent, of its 12.8 million cable subscribers.
The company also disclosed in the filing that AOL Europe, an Internet service in France, Germany and other nations, had $1.33 billion in debt and preferred securities outstanding at the end of last year. AOL Time Warner, which is buying the half of AOL Europe it didn't own from Bertelsmann AG, had earlier excluded that debt in the $6.75 billion purchase of the unit.
``Don't dribble out the surprises,'' said Henry Asher, president of Northstar Group, which owns about 27,000 shares of AOL Time Warner and manages about $100 million. ``This is a different era and it's time to talk straight to investors.''
Spokesman Ed Adler said investors have received details. ``Our recent filings have extremely detailed disclosure and that's what investors can continue to expect from the company,'' he said.
Ad Spending
AOL Time Warner's shares suffered after the company lowered its 2001 forecasts for revenue and cash flow, or earnings before interest, taxes, depreciation and amortization, in September and its 2002 financial targets in January. The company cut forecasts because of a slowdown in advertising spending.
Now, the company needs to show advertising declines have bottomed and that it can stick to its current forecasts, investors said.
``They can't control the upturn in ad spending, but what we've seen in Disney and Viacom suggests it's bottomed,'' said Duane Eatherly, portfolio manager at Eagle Asset Management, which owns about 1 million shares of AOL Time Warner. He said the stock could reach the mid- to high-20s by year-end. ``The ad business is the wild card.''
The company this week said co-Chief Operating Officer Robert Pittman replaced Barry Schuler as chief executive of America Online to help revive ad sales at the biggest Internet unit. While Pittman will boost the unit's ad efforts, investors said it may signal that the unit's ad sales continue to flag.
Buybacks
Buying back shares is unlikely to boost the stock, investors and analysts said. The company spent $3 billion last year buying 75.8 million shares. The stock slipped 7.8 percent during 2001. AOL Time Warner said it may slow the pace of buybacks this year ``to maintain financial flexibility and investment capacity.''
``It needs a bigger signal than'' a buyback, said Peter Mirsky, an analyst at SG Cowen Securities Corp. who has a ``strong buy'' rating on the shares and doesn't own any. He expects first- quarter sales of $9.3 billion and cash flow of $2 billion.
``They need to hit their numbers for the first quarter,'' he said. ``It's the credibility issue.''
AOL Time Warner is likely to earn 14 cents a share, excluding certain expenses, in the first quarter, according to the average of analysts surveyed by Thomson Financial/First Call. In the year- ago period, the company earned 23 cents a share before expenses such as amortization.
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