Dow Jones 10599.43 +5.02 9:27 am PST, August 11, 2005  NASDAQ 2157.93 +0.12 For info, visit access.smallcapnetwork.com S & P 500 1229.68 +0.55 Change your subscription status here Russell 2000 661.96 +1.80 VOLUME 05: ISSUE 61  Feature: Time Warner - Breaking Down or Breaking Up. Even though Time Warner's (NYSE: TWX) share price performance sucks, at least management has now pretty much admitted that it sucks. And now they have Carl Icahn and his buddies to reinforce that fact. TWX investors have to be among the most patient out there. For more than two years now the shares have done nothing, after getting creamed when the bubble burst. The peak at around $100 in January of 2000 will merely be a story to amuse our grandchildren. The chance of TWX returning to anywhere near $100 a share any time soon is, to say the least, remote. For the last two years the shares have been stuck in a range between $15 and $19. The annoying slow idle of the share price may well be about to end. And, in a good way. Before we look at the fundamentals and recent developments, let's take a tech look at the chart. A look at this weekly chart evidences the crappy performance of Time Warner over the last couple of years. The silver lining is that the recent trading activity has posted higher highs and higher lows. There is a good possibility that the shares are on the threshold of a sustained up move and to confirm this, we'd like to see a run to $20 on good volume and continue to trade strongly at that level. That will be the indicator, should the shares convincingly breach $20, that the range is broken. The next couple of weeks will be critical, as should the shares take out a new high, now may well have been the time to own Time Warner. Icahn rides in. With the injection of Carl Icahn into the mix, there is a very real possibility we'll see some traction, and soon. Carl would apparently like to see the five divisions sold or spun off to unlock what he sees as a $27 a share value. All of TWX's divisions are doing well--even AOL, although membership is weaker--so it is difficult to assess a true value. As one press report stated, with Icahn raising the level of the discussions, that alone may move the shares into the $20-$25 range. Carl will get some concessions: likely a larger TWX stock buyback--currently $5 billion--and some spin-off, sale or consolidation within the assets. Will there be five securities as a result of a broken up Time Warner? No. Will putting the company on the front burner reinforce to investors the true value of the company? Yes. And that's probably better than some breakup or wholesale asset sales that would likely confuse and annoy investors. Icahn has north of $100 million of TWX stock. George Soros has a chunk as well. Buffet likes cable.  Game on, it appears. Numbers... One focus in all these machinations should be to reduce TWX's debt level, which comes in at an annoying $21 billion. AOL may well be in play, or maybe not; it throws off a lot of cash and has seen ad revenues up a slug in the last year. See? Not easy calls. One thing's for sure Time Warner won't be the same company a year from now.  It will be leaner, more focused and I would suspect in a much better debt position. The share price could well be significantly higher within that time frame as a result. Analysts' earning consensus has TWX making 88 cents for fiscal 2006. At $18, that gives a p/e of just over 20 times. Not a screaming buy but a fair multiple. Upgrades and a renewed shareholder interest could well expand that number. As we've seen with other similar Internet/communication/publishing-type stocks, capturing the imagination of investors can increase value markedly. TWX is in five excellent sectors and does them better than just about any other company. I truly believe the drubbing it's taken is more due to the confusion or perhaps merely the difficulty of valuing TWX than anything particularly fundamental. I could go into an in-depth discussion of each division. But I won't. Doesn't really matter. What matters is that the market seems to be re-focusing on TWX and if Icahn can put a fire under its butt, the trade is there now. You do have options... One could buy the shares or aggressive types could look at the options. http://finance.yahoo.com/q/op?s=TWX&m=2006-01. Scroll across the top of the page and click the expiration cycle that interests you. Just an example: The Jan 06 17.50 calls are trading at $1.60 with the shares at $18.30. That means that the shares would have to exceed $19.10 to put the call buyer into profit territory. Premiums seem reasonable if not downright cheap at least until the shares move higher. Should that occur, there'd likely be a premium expansion, as investors get more positive. For those investors who want exposure to a quality big cap company that we feel is on the threshold of renewed interest and a reversal of past perceived problems, Time Warner's time may well have come.   We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 3525 Del Mar Heights Rd #334 San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. 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