NEW YORK (CNN/Money) -
Will a media conglomerate by any other name perform the same?
Probably, but that's unlikely to stop AOL Time Warner's directors from dropping the first three letters of the company moniker when the board meets Thursday in New York.
"From a fundamental basis, which is 99.9 percent of what we care about, it makes no difference," said Henry Berghoef, director of research at Harris Associates, which owns 42 million shares of the company's stock primarily in its Oakmark funds. "I'm not going out to buy more stock because of a change of name."
The name and the company were created in January 2001, when America Online, the world's largest Internet service provider, bought old-media giant Time Warner. Since then the stock has lost about two-thirds of its value, though at $16.35 it's up more than 60 percent from its all-time low, and the executives who cooked up the merger have been forced out. The Securities and Exchange Commission and Justice Department are investigating the company's accounting, and large asset sales are underway to reduce a staggering debtload.
The name change, which is likely to include a return to the company's pre-merger "TWX" ticker symbol, has the support of top executives at headquarters and at the online unit. The Washington Post reported Wednesday morning that the decision to change the company's name has, in fact, been made.
A psychological lift from name change?
To what end? Although it's not making him more bullish about the company, Berghoef sees a point to the change. "As silly as it sounds, it is healthy psychologically," he said.
Merrill Lynch analyst Jessica Reif-Cohen is stronger in her support of the move. "I can't quantify it, but I think it can help," she said. "It makes clear to investors that AOL is only one division, and not the largest division. If you want to name it after the most profitable division, you'd go back to calling it Warner Bros." Reif-Cohen has a "buy" recommendation with a $24 price target. Merrill does investment banking work for AOL Time Warner and owns more than 1 percent of its stock.
Besides America Online, AOL Time Warner (AOL: up $0.26 to $16.31, Research, Estimates) business units at the company include the Warner Bros. and New Line studios, cable systems, broadcast and cable networks, magazines, and record labels, as well as CNN/Money and CNN.com. Many of those units, particularly cable and studios, have been showing good financial performance. Only the music division, one of the units on the block, has been hit by declines -- a situation shared by the entire recording industry.
Earnings per share are expected to come in at 46 cents this year, according to earnings tracker First Call, up from 29 cents a year ago before special charges forced the company to post the largest loss in corporate history. Earnings are expected to rise to 54 cents a share in 2004.
There is still trouble at the America Online unit, which has seen a continued loss of ad revenue and a decline in its subscriber base.
"We continue to be concerned with the weakness in the online business, particularly among dial-up customers," said David Mantell, an analyst at Loop Capital Markets who has a neutral rating on the stock. His Chicago-based firm does not own any shares or perform any investment banking for the company. "A name change is nice, but does it mask the ongoing weakness? No. It's a cosmetic thing."
Still, despite the problems at America Online, Reif-Cohen and Berghoef both say they are pleased by the changes going on at the Internet unit, which has reorganized its ad sales staff and announced a new emphasis on attracting customers to more expensive, high-speed "broadband" service last December to stem the loss of subscribers.
"The company had had its head in the sand regarding broadband," said Reif-Cohen. "They've developed a product for that. The trend away from narrowband (dial-up service) to broadband is clear and they can't reverse the trend. But at least they've honed in on the cost structure."
Asset sales continue
Some investors and analysts advocate spinning off the America Online unit, but even a critic of the division like Mantell said he thinks that's unlikely, given management's public commitment to hang onto the Internet operations.
"I don't think a name change answers the question about what the company will do," said Mantell. "It could be viewed as a preliminary step (towards a spinoff), but we don't see it portending that at this point."
The company is in the process of selling a number of units it considers "non-core" assets as it tries to reduce debt. At the end of the end of the second quarter net debt was down to $24.2 billion from $28.2 billion at the end of the third quarter of 2001. Chairman and CEO Richard Parsons wants to get net debt below $20 billion by the end of 2004.
Tuesday the company announced it had reached a deal to sell its professional basketball and hockey teams, and earlier this year it sold its half of the Comedy Central cable network to Viacom for $1.23 billion, and its Warner Music Group's DVD and CD manufacturing for $1.05 billion.
The Hollywood Reporter reported that the board will also be updated on the status of talks to combine the company's Warner Music unit with BMG, the record label of German media conglomerate Bertelsmann. Sources with Warner and AOL could neither confirm nor deny that report, and officials with BMG were not available for comment.
Published reports also suggest that AOL could turn to independent recording company EMI if it is not able to agree to terms with BMG. On Monday EMI announced it had raised $338 million through the bond market just three days after raising another $243 million there, raising expectations that it could become a bidder for Warner Music assets.