AOL Time Warner and AT&T Corp said today they will unwind a 10-year-old partnership in an estimated $9 billion deal.
AT&T plans to sell its 27.6 per cent stake in the partnership, Time Warner Entertainment, which includes the HBO cable channel, Warner Brothers film studio and Time Warner Cable, for $2.1 billion in cash, $1.5 billion in AOL stock and a 21 percent stake in a new publicly traded company holding the cable systems.
AOL will get complete control of HBO and Warner Brothers, and the remaining 79 pe rcent of the new company, to be dubbed Time Warner Cable.
AOL is betting the simpler structure will provide more flexibility as it pursues future deals.
For AT&T, the deal would help the telecommunications giant cut its debt load and strengthen its balance sheet as it prepares to sell its cable TV business, AT&T Broadband, to Comcast Corp. later this year.
AT&T will also give AOL's America Online Internet service access to its high speed cable lines. Such access deals are essential if AOL is to offer higher-priced services and more extensive entertainment offerings over the Web.
Currently Time Warner Cable is the only operator offering America Online over its cable lines.
The complex agreement ends years of negotiations, which languished amid disagreements over price, the venture's complex mix of businesses, and the two partners' own financial constraints.
The companies expect to complete the deals in early 2003, after which AOL Time Warner would conduct an initial public offering of Time Warner Cable.
AOL said it expects the first $2.1 billion raised in the IPO would go toward paying down debt incurred by the $2.1 billion cash payment to AT&T.
People familiar with the deal estimate the total value of Time Warner Cable at about $25.7 billion, which would make AT&T's 21 percent stake worth about $5.4 billion.
Time Warner Cable has 10.8 million subscribers, ranking second in size behind AT&T.