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Saturday, August 26, 2006

Weekend Edition:Cramer's Break-Up Plan For Time Warner

Stocks: (TWX)(VIA)(CBS)(CMCSA)

Jim Cramer, the most famous stock analyst in America, has suggested that Time Warner is worth much more in pieces than its is as a media conglomerate.

His analysis says that Time Warner cable is worth $11 a share, especially with its recent acquisition of assets from Adelphia. AOL may be worth $2 a share, of $8 billion, especially to a company like Microsoft. The company's studios should fetch $3 a share from a competitor like Paramount. HBO could be solf to a company like Viacom for $4 a share. The basic cable networks like CNN would be worth $6 a share to a company like CBS. He values the company's magazine group at close to nothing.

Time Warner may be worth more than he thinks. The studio division of Time Warner does about $10 billion a year with $1.3 billion in operating income. It would probably go for substantially more than Mr. Cramer's price of $12 billion.

Comcast has a market cap of $72 billion. Based on the subscriber count of Time Warner cable vs. Comcast's count, the cable operations could be worth $55 to $60 billion. Operating income at TWX cable operations runs about $4 billion per year. With the new Adelphia subscribers, that number should go up.

The operating income at the Time, Inc. publishing division is close to $750 million a year. Annual revenue is close to $5 billion. That company is probably worth $6 billion to $7 billion.

With operating income of over $3 billion, the TWX network group is probably worth in excess of $20 billion.

Cramer's number for AOL may be right. The division has almost $2 billion in operating income, much of its at risk.

The break-up value of TWX may be worth north of $120 billion. So, $30 a share on a break-up may be a better number.

Douglas A. McIntyre

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