Monday, media and entertainment giant Timer Warner Inc. (TWX) and its wholly owned subsidiary AOL Inc. announced the distribution ratio for common shareholders of Time Warner, related to the spin-off of AOL from Time Warner.
Shareholders of Time Warner will receive one share of AOL common stock on December 9 for every eleven shares of Time Warner common stock they hold on close of the business on the record date, November 27.
Separately, the company declared a quarterly cash dividend of $0.1875 per share to its shareholders on record at the close of business on November 27, 2009 payable on December 9.
The distribution of shares and dividend, approved by the Time Warner board of directors, will result in the complete legal and structural separation of the two companies.
A spin-off is a process by which the parent company or corporation divests a division or by issuing to stockholders shares in a new company set up to continue the operations of the division or subsidiary.
Time Warner's common shares will continue to trade in a regular way on the New York Stock Exchange through the distribution date of December 9 and thereafter. However, any holders of shares of Time Warner common stock who sell their Time Warner shares in regular way on or before December 9 will also be selling their right to receive shares of AOL common stock.
On November 24, AOL common stock will begin trading on a "when-issued" basis on the NYSE under the symbol "AOL WI" and on December 10 when-issued trading of AOL common stock will end and "regular-way" trading under the symbol "AOL" will begin, New York-based Timer Warner said.
The CUSIP number for the AOL common stock will be 00184X 105 when regular-way trading begins.
To receive the shares of AOL common stock no action or payment is required by Time Warner stockholder. Prior to the distribution date, the eligible right holders of AOL will receive information statement by mail which will contain details regarding the distribution of the AOL common stock and AOL's business and management following the AOL spin-off.
The eligible holders on rights who hold Time Warner common shares on record date will receive a book-entry account statement reflecting their ownership of AOL common stock or their brokerage account will be credited with the AOL shares on the distribution date.
Fractional shares of AOL common stock will be aggregated and sold in the open market, with the net proceeds distributed pro rata in the form of cash payments to Time Warner stockholders who would otherwise be entitled to receive a fractional share of AOL common stock. No fractional shares of AOL will be distributed to Time Warner stockholders as a result of the transaction.
While, AOL spin-off has been structured to qualify as a tax-free dividend to Time Warner stockholders for U.S. federal income tax purposes, cash received in lieu of fractional shares will be taxable.
In May, the company which owned a majority 95% stake in AOL announced its plans to separate AOL after the company's attempts to find a home for AOL with Yahoo (YHOO) and Microsoft (MSFT) failed.
Time Warner bought AOL in 2001 for $147 billion. In 2002 and 2003, the media company incurred charges of about $100 billion due to declining value of the combined company, Time Warner and AOL.
On July 8, Time Warner bought back Google Inc.'s (GOOG) 5% stake in AOL for $283 million, which earlier issued by Time Warner on April 13, 2006 for $1,000 million in cash.
In the recent third quarter, AOL segments had slipped by 18% year-over-year to $914 million from $1.12 billion due to 13% decline in Subscription revenues and 24% downturn in other revenues. The segment's operating income fell 40% to $97 million from $162 million for the year earlier period.
Monday, TWX closed at $32.35, up $0.40 or $1.25% on a volume of 5.75 million shares on NYSE. However, in the after hours after the announcement the stock gave up its regular session gains and is currently trading at $31.83, down $0.52 or 1.61%.
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