AOL To Restructure Time Warner Entertainment

Posted on August 23, 2002

AOL Time Warner Inc. has announced an agreement with AT&T and Comcast Corporation to restructure Time Warner Entertainment Company, L.P. (TWE). As part of the restructuring AOL Time Warner will acquire full ownership of Warner Bros., HBO and TWE's Interests in The WB Network, Comedy Central and Court TV. The Company also announced a broad carriage agreement that will make AOL High Speed Broadband available on a number of AT&T Comcast cable systems.

In addition, all of AOL Time Warner's cable assets, including those currently owned by TWE, will be owned by a new subsidiary of AOL Time Warner to be called "Time Warner Cable Inc." AOL Plans to target the new company for an IPO launch in 2003.

AOL Time Warner's Chief Executive Officer Dick Parsons said: "This restructuring of TWE is the best possible outcome for our investors and marks another important step in achieving our Company's near-term priorities. Through this restructuring, we will simplify our overall structure, while maintaining the integrity of our balance sheet. AOL Time Warner will recapture total ownership and control of its content businesses, enabling us to manage this portfolio of assets for maximum value. And all of the Company's state-of-the-art cable assets will be combined for the first time into a well-capitalized, pure-play cable company. Finally, the broadband access agreement provides us with our first significant nonaffiliated third-party broadband cable carriage for AOL High Speed Broadband."

As part of the restructuring, AT&T (or AT&T Comcast, depending on when the transaction and merger close) will exchange its current stake in TWE, which at June 30, 2002 consisted of a $5.7 billion preferred interest and a 27.64% residual equity interest, for $2.1 billion in cash, AOL Time Warner common stock valued at $1.5 billion at the time of closing, and a 21% economic stake in the business of Time Warner Cable Inc.

Subject to market conditions, AOL Time Warner plans to conduct an initial public offering of Time Warner Cable Inc. soon after the restructuring. It is anticipated that the first $2.1 billion raised in any such IPO would go to pay down Time Warner Cable Inc.'s debt incurred to fund the $2.1 billion cash payment to AT&T. Thereafter, AT&T will have certain priority registration rights with respect to its stake in Time Warner Cable Inc.