How Much Is Time Warner Worth In A Break Up?

In a new report, Credit Suisse analyst Omar Sheikh explores the potential for Time Warner Inc TWX to unlock value by breaking up its businesses into separate companies. Sheikh explored three possible breakup combinations of Turner, HBO and Warner Bros.: 1. Three separate companies, 2. HBO plus Turner/Warner Bros. and 3. Turner plus HBO/Warner Bros.

Sheikh notes that a spinoff of either HBO or Warner Bros. would likely trigger $4.7 billion in bond redemption penalties, which would certainly weigh on the potential value benefits of the move. In addition, Credit Suisse argues that all three companies enjoy both vertical and horizontal cost synergies because of the union, and that the three entities would lose a combined half a billion dollars in free cash flow in the event of a breakup.

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“We argue that a realistic break-up valuation range is just $79-89 per share, lower than our $90 standalone valuation of the group in its current form,” Sheikh concludes.

Credit Suisse maintains an outperform rating on Time Warner’s stock.

Disclosure: the author holds no position in the stocks mentioned.