Time Warner Is Embracing Plan To Break Up Company

Two years after it successfully fought off the efforts of Carl Icahn and the plan authored by Lazard Frères to break apart Time Warner, the company seems ready to embrace it.

While the timing of an expected change in the chief executive position has garnered a good deal of coverage of late, Time Warner has been moving ahead with a more important plan that would result in the split off of its majority ownership in Time Warner Cable and eventually include the spin-off of publishing and parts of its AOL unit.

None of this will happen overnight, though it is possible that when reporting an unexciting quarter next week the company will make some reference to a split-off of cable, perhaps in an effort to keep an otherwise sagging stock form sagging some more.

The plan to split off its 85% ownership stake in Time Warner Cable seems to have picked up speed since the company's board meeting in London last week.

While any actual split would not occur until after the first quarter of next year, when it becomes a non-taxable event, outside advisors who would plan for such a thing say it is underway.

In fact, a recent note from a Bank of America analyst noted certain balance sheet actions that Time Warner Cable was taking as potential preparation for a separation.

The split could take the form of an exchange offer and spin. In that way it would be similar to what Viacom did with Blockbuster or GM did with GM Hughes.

Time Warner shareholders would be offered a ratio to exchange some of their Time Warner shares for Time Warner Cable. Presumably that ratio would incentivize such an exchange and through that exchange Time Warner would repurchase its own shares.

Time Warner Cable already trades publicly and has been hurt along with other cable stocks as concern over competition from AT&T and Verizon has heated up recently. The challenges being faced by the cable unit and the potential sale while at its lows do not seem to be dissuading Time Warner from pursuing the split.

While cable may be first, there is a strong possibility it won't be last. The sale of AOL's dial-up access business is also on the table, as is a potential spin-off of publishing, loaded up with debt.

While none of this is going to occur immediately, it seems likely that by the end of next year, new CEO Jeff Bewkes will be presiding over a decidedly different and pared-down Time Warner.

The key question, however, remains. Will any of it help the stock price and long suffering shareholders? Carl Icahn may have made $100 million from his investment, but few others can make such a claim.

© 2009 CNBC.com