AT&T moves to sell TWE holdings

(Telephony) AT&T has taken the first step toward selling its 25.5% stake in Time Warner Entertainment to the public in the form of securities in a move analysts believe is designed to give it some leverage in negotiations with AOL Time Warner.

Yesterday, the company announced that it asked AOL Time Warner to reorganize TWE’s corporate structure from a partnership to a corporation with securities, thereby allowing AT&T to hold a public stock offering. A right inherited by AT&T through its acquisition of MediaOne Group, Time Warner must comply with the request.

AT&T’s move to sell its interest in TWE is part of an intensive effort to reduce its debt of about $46 billion.

AT&T’s sale of its TWE interest comes under regulatory pressure resulting from its acquisition of MediaOne Group. When the merger was approved in May, the FCC gave AT&T three options that would allow it to meet cable subscribership caps.

In December AT&T announced conditional plans to spin off Liberty Media. But the FCC ruled AT&T did not commit to a single course of action and ordered AT&T to divest its holdings in TWE by May 19. Currently, AOL Time Warner is the only potential buyer to express interest.

Analysts say these factors have compromised AT&T at the bargaining table, where negations have stalled at a reported $15 billion asking price from AT&T versus a $10 billion offer from AOL Time Warner.

“AT&T has minimum leverage, and Time Warner has maximum leverage,” said Scott Cleland, CEO of The Precursor Group. “In the end, it’s going to be hard to see how AT&T gets top dollar.”

With this move, however, AT&T gains a bargaining chip, said Gary Jacobi, director of wireline equity research at Deutsche Banc Alex Brown.

“If there’s not another corporation that would really want to buy, then sell it to the public and let Time Warner deal with all the issues of dealing with the public. Not a bad strategy,” he said.

The request already might be intensifying the negotiations. AT&T and AOL Time Warner have agreed to suspend action surrounding the changes in TWE’s corporate structure until March 15 as they continue negotiations.