NEWSWIRE - February 26, 2001
Topic: Stocks and Their Valuation
Source: "AT&T Plans Offering of Stake AOL Wants," by Martin Peers and Nikhil Deogun, Wall Street Journal, Monday, February 26, 2001, page A3.
Synopsis of Article: The article discusses negotiations between AT&T and AOL Time Warner to transfer ownership of AT&T's 25.5% stake in Time Warner Entertainment, a unit of AOL Time Warner organized as a partnership. AOL Time Warner is offering $9 to $10 billion for AT&T's stake plus several side agreements related to AT&T's cable systems. AT&T is balking at the price (the stake was valued by analysts in the past at up to $15 billion) and at the side deals. AT&T does have the right to take its stake in Time Warner Entertainment public through an initial public offering. This strategy has risks to both AT&T and AOL Time Warner. The article provides an opportunity to discuss IPOs, and equity valuation.
Questions:
- What are the risks to AT&T and AOL Time Warner if AT&T offers its 25.5% stake in Time Warner Entertainment to the public through an IPO?
- How would an investment banking firm estimate the value of the stake?
- How do liquidity, control, and antitrust issues impact the value of AT&T's stake in Time Warner Entertainment?
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