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Farallon Capital starts new position in Time Warner Inc.

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Jan. 13 2015, Updated 10:00 a.m. ET

Time Warner stake for Farallon

Farallon Capital Management initiated a position in Time Warner Inc. (TWX) during the third quarter of 2014. The position accounted for 2.85% of the fund’s 3Q14 portfolio.

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Overview of Time Warner

Time Warner Inc. is a global leader in media and entertainment. The company has businesses in television as well as film. Here are some of Time Warner’s media brands:

  • HBO
  • CNN
  • TNT
  • TBS
  • Cinemax
  • Warner Bros.
  • New Line Cinema

The company’s main segments are Turner, HBO, and Warner Bros.

Time Warner’s spin-off of Time Inc.

In June 2014, Time Warner completed the previously announced spin-off of its magazine unit, Time Inc. (TIME). Time Warner said the move would provide strategic clarity for the company. The spin-off also would allow Time Warner to focus completely on its television and film businesses while improving its growth profile. After the spin-off, TIME will continue to be the leading multi-platform publishing and branded content company.

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Turner and HBO drive 3Q14 revenues

Revenues increased 3% to $6.2 billion during the third quarter. This growth occurred mainly due to the 10% uptick in subscription revenues for Turner and HBO. Adjusted EPS (earnings per share) increased 34% to $1.22, reflecting the lower taxes that resulted from a net tax benefit of $639 million. The net tax benefit related to the reversal of certain tax reserves in 3Q14. There were also fewer outstanding shares.

Adjusted operating income decreased 38%. The reduction came about due to the company’s decision not to air certain programming. Restructuring and severance charges across all segments also had an effect.

3Q14 results by segment

Time Warner’s main segments saw the following results during the third quarter:

  • Turner’s revenues rose by 5% mostly because of the 10% growth in subscription revenues and the 17% increase in content revenues. A 2% decline in advertising revenues partially offset this.
  • HBO’s revenues grew by 10%, reflecting the 10% increase in subscription revenues and the 7% growth of content revenues.
  • Revenues from Warner Bros. increased by 3% mainly due to growth in subscription video-on-demand revenues for television products and higher licensing for theatrical products. Television production increased thanks to the acquisition of Eyeworks Group’s operations outside of the US. Revenues from a patent license and settlement agreement also contributed to growth in this segment.
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Stock repurchases activity

In June, Time Warner’s board of directors authorized an additional $5 billion of share repurchases. As of October 31, 2014, $5.1 billion remained available for repurchases.

Farallon Capital’s other 3Q14 positions

During the third quarter, Farallon also started new positions in Tim Hortons Inc. (THI), International Game Technology (IGT), and Cognizant Technology Solutions (CTSH). The fund increased its positions in DIRECTV (DTV), Covidien plc (COV), Allergan Inc. (AGN), and Shire plc (SHPG). Positions sold by Farallon during the third quarter include Yahoo! Inc. (YHOO), Oracle Corp. (ORCL), and Weyerhaeuser Co. (WY).

The next part of this series will explore Farallon’s new position in Tim Hortons Inc.

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