After more than three months of negotiations, AOL Time Warner Inc. has
worked out a deal with Advance/Newhouse Communications that will transfer
management control of about 2 million subscribers to the publishing giant.
The deal works out to be a big coup for A/N, which formed the Time Warner
Entertainment-A/N partnership in 1995, contributing 1.4 million subscribers,
mainly in systems in upstate New York, to the venture.
A/N is part of Advance Communications Inc., the publishing giant owned by the
Newhouse family.
While A/N has regularly contributed cash as the partnership added cable
systems, it is receiving some of Time Warner Cable's largest operations,
including its 945,000-subscriber Tampa, Fla., operations -- its second-largest
cluster outside of Manhattan -- and its third-largest cluster, the
701,000-customer central Florida system, which includes Time Warner Cable's
flagship Orlando operations.
Orlando was the center of Time Warner's failed Full Service Network
interactive-television experiment in 1994.
In addition, A/N will receive Time Warner Cable systems in Birmingham, Ala.;
Indianapolis; Bakersfield, Calif.; and Detroit. Several other smaller systems in
Alabama and northern Florida will also be included.
According to the press release, A/N will manage the day-to-day operation of
those systems, which will remain in the TWE-A/N partnership.
However, A/N's one-third interest in the venture will only track those
systems, and not the entire 6.7 million subscribers in the partnership.
In addition, A/N will give up its indirect ownership interest in Time Warner
Cable's Road Runner high-speed-data service.
When the transaction is completed -- expected later this year -- Time Warner
Cable will fully manage 10.8 million cable customers. The company previously had
management control of 12.9 million.
A/N CEO Bob Miron said the TWE-A/N partnership will remain intact because 'we
can still do a lot of things together that jointly help each other. We can get a
lot of good engineering help, we gain scale for program buying and things of
that nature.'
According to the partnership agreement, A/N has had the right to renegotiate
the terms of the partnership every April 1 since 1998.
'The original partnership structure was if we ever wanted to restructure or
divide the company, it was to be divided into three parts -- Florida being one,
upstate New York being the other and the Carolinas being the third,' Miron said.
'We picked first.'
Miron said A/N is also interested in expanding its cable presence even
further, and it intends to operate the systems for the long haul.
Time Warner Cable will provide certain functions, including programming
services, to all of the systems. In addition, all of the systems will support
multiple Internet-service providers for high-speed-data service.
'We are pleased that this agreement will keep Advance/Newhouse and its cable
subscribers in the family,' Time Warner Cable chairman and CEO Glenn Britt said
in a prepared statement. 'Together, we will ensure that our customers enjoy a
seamless transition while we continue to benefit operationally from the existing
advantages of scale.'
According to AOL Time Warner, the new structure would have reduced its
first-quarter-2002 revenue and cash flow by $350 million and $160 million,
respectively. For full-year 2001, the impact of deconsolidating the A/N-managed
systems would have reduced revenue and cash flow by $1.25 billion and $570
million, respectively.
As of March 31, AOL Time Warner's net debt would have
been reduced by approximately $800 million as a result of this
transaction.
