A spinoff of HBO may be tantalizing to some Time Warner ( TWX) shareholders. Freed of its corporate bounds, and valued on comps to Netflix ( NFLX) , the home of Game of Thrones and The Sopranos could be worth $30 billion or more.
Chief Executive Jeff Bewkes has focused the New York media group around film, television and video properties, which may not auger for a breakup of HBO from properties such as Warner Bros and Turner Broadcasting. Some analysts have questioned how true the comparisons to Netflix ring. Time Warner declined to comment on the possibility of a deal.
Moody's Investors Service analyst Neil Begley said Time Warner's balance sheet contains a substantial impediment to a divestiture, namely indentures on billions of dollars in bonds that would require the company to obtain bondholder consent for a spin or risk litigation.
"It wouldn't an easy task or a painless task to spin off HBO," Begley said.
It wouldn't be cheap either. About $8 billion in debt has guarantees that prevent HBO from getting rid of substantially all of its assets. Unlike other indentures, these notes do not have provisions that would release the guarantees if the securities were repaid or made whole. In some cases, the company cannot call the debt.
"They could demand a lot of money [where bonds are not callable and therefore without make-whole provisions], which would be the likely case," Begley said, regarding holders of the notes. "If [bondholders] owned a lot of other bonds and they wanted to protect themselves further up the chain," he added, "they could just say no."
Theoretically, Time Warner could fold all of HBO into one of its corporate structures holding other assets. Then, if Time Warner spun off HBO's assets but left other operations within the structure, it would not be divesting all of the entity's assets.
However, Begley said that when Time Warner spun off AOL in 2009, the company gave bondholders guarantees from HBO as a concession.
"To get consents from bondholders to allow them to do that, effectively giving up that guarantee from the AOL assets, they had to give them something else in return," he said. "There might have been a fee and they gave them a new guarantee that didn't exist before from HBO to the intermediate holding company which in turn guarantees the ultimate parent."
Since HBO has started its over-the-top video service, providing content over the Internet rather than through a set-top box, the comparisons to Netflix are tempting.