Time Warner Cable's IPO seen popular-analysts

By Yinka Adegoke
NEW YORK, Oct 20 (Reuters) - Time Warner Cable Inc.'s planned initial public offering is likely to be well received by investors eager for another opportunity to tap the fast-growing U.S. cable sector, analysts said.

The offer from the unit of Time Warner Inc. (TWX.N: Quote, Profile, Research) is expected within three months, after it registered the IPO with the U.S. Securities and Exchange Commission on Wednesday, in the first step toward spinning off 16 percent of its equity.

According to the filing, proceeds from the IPO will go entirely to bankrupt cable operator Adelphia Communications Corp. (ADELQ.PK: Quote, Profile, Research) as payment for some of its cable assets that Time Warner bought, under an agreement reached in July.

The agreement had valued Time Warner Cable's total equity at about $34.4 billion.

Industry analysts have long speculated that the IPO could be a precursor to more fund-raisings for acquisitions, such as cable assets belonging to Cablevision Systems Corp. (CVC.N: Quote, Profile, Research). Cablevision's 3 million subscribers are in the New York metropolitan area like Time Warner Cable.

Analyst Francis Gaskins of IPODesktop.com said that a stand-alone Time Warner Cable would be able to take advantage of its scale and integrate smaller cable companies, making it an attractive growth prospect for investors.

"It's a dominant company that's willing to grow by acquisition. There's a lot of cable companies they can buy with their stock once they're public," said Gaskins.

Cable companies have logged strong subscriber gains this year thanks to "triple play" packages that bundle together television, phone and Internet services for consumers

Although telephone companies are retaliating with video offers of their own, cable shares continue to perform well. The largest, Comcast Corp. (CMCSA.O: Quote, Profile, Research), has seen shares rise 47 percent this year. Shares in Time Warner Inc., which also owns AOL, Warner Brothers and HBO in addition to Time Warner Cable, have risen only 13 percent in comparison.

"We believe the market has only started to appreciate the value in Time Warner Cable, and believe the IPO and stand-alone stock with a separate valuation will go a long way toward unlocking value for Time Warner shareholders," Credit Suisse analyst William Drewry wrote in a note on Thursday. "The fundamentals have been as good or better than Comcast's and there is significant potential upside to come."

Time Warner Inc.'s enterprise value trades at 8.3 times forecast 2007 earnings before interest, tax, depreciation and amortization. Comcast trades at 9.2 times EBITDA.

The IPO comes after Time Warner and Comcast agreed in July to buy cable systems from Adelphia. Time Warner paid $8.9 billion in cash plus 16 percent of Time Warner Cable's equity, or 157 million shares. The stake was valued at $5.5 billion.

Adelphia is required to sell at least one-third of its stake within three months of the effective date of the registration approved by the SEC.

The filing gave no details on pricing or number of shares to be offered in the IPO. Time Warner Inc., which will retain 84 percent ownership of the cable company, declined comment.

Robert Routh, an analyst at Jefferies & Co., estimated Time Warner Cable to be worth $35.25 per share based on the Adelphia deal and said its enterprise value was about $54 billion. Enterprise value includes both equity and debt.

Given the hot cable sector, analysts expected the IPO to be priced at a premium and to raise $5 billion to $6 billion.

Michael Nathanson, an analyst at Bernstein Research, said each of the company's 14.4 million subscribers would be worth about $4,000, similar to Comcast's subscribers