Porter Bibb, Mediatech Capital Partners andReese Schonfeld, CNN Founding President

This is a partial transcript from Your World with Neil Cavuto, May 27, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: Is it time for AOL to go AWOL? Former AOL Time Warner boss and the man who merged AOL with Time Warner telling anyone who’ll listen that maybe it’s time to separate AOL from Time Warner. The New York Times reporting that Steve Case thinks the time has come.

Has it? Let’s ask media expert Porter Bibb, former CNN boss Reese Schonfeld, and our own bulls-and-bears boss Brenda Buttner.

Porter Bibb, to you first.

We should stress that we asked AOL Time Warner to respond to this, and this was the statement that the company issued:

"As we’ve been saying for months, the company is focused on turning around AOL and returning it to a growth track, not spinning it off."

Who’s right?

PORTER BIBB, MEDIATECH CAPITAL PARTNERS: Well, that’s their statement, and they’ve stuck it with. But they don’t really have any option, Neil. They’ve got to sell this thing before it disappears.

CAVUTO: Why do they have to, or do they?

REESE SCHONFELD, CNN FOUNDING PRESIDENT: They may not. Miracles still happen. They may be able to turn it around. But, you know, last time I was on, you asked me why Case quit the chairmanship. It was because he knew he’d be kicked off as chairman.

If he stayed on the board, he could hang around and wait for it to come up to buy, he’d be inside, and nobody knows better than he does what the value of that company will be after Time Warner is finished with it. So he’s the guy bankers will turn to.

CAVUTO: You know, there’s a separate school, albeit a minority school, Brenda, that says this deal simply was way ahead of its time and that it did make sense and ultimately could make sense.

BRENDA BUTTNER, SENIOR BUSINESS CORRESPONDENT: Right, there is that as well. But, first of all, I think that selling it at this point would be buying high, selling low...

CAVUTO: It’s been done.

BUTTNER: Yes. Absolutely.

CAVUTO: The Vivendi people are now contemplating just that.

BUTTNER: In the media business by many, many people. No, but there are people who think that, yes, it was the right marriage. But, honestly, I think that that’s been proven false in the last few years. The corporate cultures clashed. AOL is just actually behind times.

BIBB: There’s no value...

BUTTNER: There’s no way that it can grow at the level it used to.

CAVUTO: So is there any value if you spin it off?

BIBB: Oh, there’s great value. Right now, it has 26-million-plus subscribers. It has a billion two in free cash flow. It’s worth $8 billion, $10 billion, $12 billion to the right buyer, and there are buyers out there.

CAVUTO: But the history of spin-offs on Wall Street is pretty dicey.

BIBB: We’re not talking spin-off.

BUTTNER: Not spin-off. Buying.

BIBB: You couldn’t sell this to the public in a million years.

CAVUTO: Who buys it?

BIBB: Microsoft which has a dying MSN. Yahoo! which is looking for way to get critical mass in the business. Any one of the major telephone companies that are all trying to break into broadband.

CAVUTO: How does this affect your old haunt, CNN, if that happens?

SCHONFELD: I don’t think it affects anything. What people forget, as everybody here has forgotten, is that AOL picked up $7 billion in debt they had to pay off to Bertelsmann when they bought that company, and I don’t know if the company’s worth any more than $7 billion right now. You know, from what Porter says, it isn’t. I think they’re stuck. I think they’ve got to keep it. They’ve got to hope for a miracle and maybe find some way to make it work. God knows I don’t know what the way is, and I don’t think they found it yet.

CAVUTO: But I think he planted a seed. Brenda, I think he planted a seed, and he wanted to see if it would take.

BUTTNER: I think so, but, in a way, it kind of reminds me of a toddler who doesn’t have much say anymore over his toys, and so now he’s saying, you know, I want to get it back, basically.

CAVUTO: This is a fairly rich toddler.

BUTTNER: Well, very rich.

BIBB: Gordon Crawford’s floated the idea. It’s an idea that’s gestating right now. It’s very hard for Dick Parsons to bite the bullet and say we should sell.

CAVUTO: Well, you know, the few of us at this table could buy that.


CAVUTO: So what’s to stop people from saying that is really Case’s message?

BIBB: The real value, though, in selling AOL now is the opportunity cost that they would get shod of because Time Warner has to focus on its core businesses, and the stock price would double overnight if they off-loaded the online business.

CAVUTO: So media stocks have been on a tear from their October lows on average up to about 30 percent. What are we to glean from that? Obviously, people are looking at advertising turnaround. They’re looking at the economy picking up. They’re even looking at the underlying entities doing better, including CNN.

SCHONFELD: Well, you know, I wish all these things were proof for AOL Time Warner. AOL Time Warner is loaded with debt and loaded with debt and here, if they give up a billion two in free cash flow, how does that affect their ability to meet their debt payments? It’s a pain in the neck for them. They’ve got to get real value. They cannot sell low.

CAVUTO: So, would you say get rid of AOL?

SCHONFELD: No. Not unless they can get a price.

CAVUTO: I think Brenda’s right. You’re not going to get that price.

BUTTNER: Don’t forget, too, there are accounting antics, and the SEC’s looking into them there. I mean there are problems there that go beyond just price.

BIBB: They probably can’t sell until these investigations are resolved. But, if they did sell, they would cut their debt maybe in half, and then they’d be off to the races.

SCHONFELD: And they’d use probably an improper phrase now. I’ll call it a tar pot rather than a tar anything else. They’re stuck with it, whether they want it or not.

CAVUTO: All right. Reese Schonfeld, final word on the subject. Still winning those friends at CNN. I like to see that.

Porter Bibb and Brenda Buttner.

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