Icahn, Time Warner: Not Just Fishing Expedition

However, each division is flourishing (more or less) on its own and a breakup would present a less-confusing picture for Wall Street in terms of valuing the components. (See the recent breakups at IAC(IACI Quote) and Viacom(VIA.B Quote) for proof of this.)

Cable

Cable is the division Icahn would like to get rid of first. The group had EBDA, or earnings before depreciation and amortization, of $1.7 billion in the six months prior to June 30, up from $1.5 billion in the same period in 2004, and cable is exhibiting solid growth. This group could potentially be valued similarly to Comcast(CMCSA Quote), at 11.5 times EBITDA, or Cablevision, at 19 times EBITDA. Investors in the industry in general have been troubled by the onset of new technologies and competition from satellite, but at 10 million subscribers and growing, Time Warner is not currently sweating it.

Filmed Entertainment

Filmed Entertainment experienced slowing revenue over the past six months vs. the year-ago period ($5.5 billion vs. $5.9 billion) but this is a more volatile area and was hurt by the fact that in 2004 there were DVD sales from the Matrix and Lord of the Rings franchises, which were only partially offset by the Harry Potter franchise this year.

That said, Time Warner has a long way to go before running out of Harry Potter movies, and the Batman and coming Chronicles of Narnia movies should provide a solid boost for years to come. Pixar(PIXR Quote), Disney(DIS Quote) (respectively at 15 times and 11 times EBITDA), or even Lion's Gate (LGF Quote)(at 23 times EBITDA), could provide reasonable comps to a spun-out Warner Brothers.

Networks

For the purposes of valuation comparisons, it's helpful to combine the Networks segment with the above "filmed entertainment" segment, although Time Warner breaks them out. They do this for historical reasons even though there are common areas in both segments (for instance, television production.) The filmed entertainment segment comes from the old Warner Brothers units and the networks segments come from Time Inc. (which owned HBO) and Turner. The network segment this year had slowing growth but primarily because "Everybody Loves Raymond" went off the air, so HBO had smaller licensing revenues. However, all the basic metrics performed well, with subscription revenue up 7% and advertising up 6%.