Time Warners Jeff Bewkes Interview

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L.G.: What are you going to do with that money?

J.B.: Well, what we're committed to doing, not just with that money but the money we get from ongoing cash flow—because we have a very strong, large cash flow every year that we intend to have go up—is, we're going to either use it essentially—

L.G.: What is it—like $11 billion?

J.B.: Well, no, the cash flow for Time Warner today, with the cable in it, this is free cash flow net of debt payment and everything else—we've said, $4 to $5 billion. But let's put it this way, the cash flow for Time Warner, after cable, is disproportionately high compared to what it is now because cable uses a lot of capital. So it spins off and we'll be able to keep a large part of our cash-generated capability at Time Warner. So added to the money that comes out of cable—

L.G.: So the $9 billion plus—

J.B.: Several billion beyond that. So what do you do with it? This is what we always do. This will be an ongoing basis: Invest the money on any ongoing business needs that we have to make sure our existing businesses at Warner, Turner, HBO, etcetera—any returns they'd have that are superior returns, we can put in the money. We've never been short of capital for those purposes, so that essentially continues with the discipline that it's had. Second thing is, you also look for any acquisitions that would improve the strategic position of any of those companies or the total company. But in a way—now here's the problem—in the media business, most of the acquisitions that most companies have made have not produced a good return. And a lot of the investments or acquisitions Time Warner has made have not produced a good return. And so we would only make acquisitions that really we had a high degree of confidence that we knew how to operate them, essentially things that don't have that much risk because we'd know how to operate them, how to consolidate them with our existing managements and so forth. Which probably means, given the magnitude of the cash resources that we have, that a large amount of the cash flow isn't needed for either reinvestment in ongoing business or in acquisitions. Because it's hard to find acquisitions that are priced reasonably enough that we end up thinking they're worth doing. The Weather Channel—which was a good asset, and something we knew exactly what to do with—we just didn't think the price of what it would've cost to buy worked.

L.G.: What were they asking?

J.B.: They were asking, what was it, three and a half [$3.5 billion]? And we just thought it didn't give us a high enough return. The likely question, we're looking at all those things, and probably in shrinking the equity bases. Meaning, you know, buying the stock because if the stock is trading at a modest multiple, which is what they are trading at today, then you would in that case make more money buying your own stock—that you know exactly what it's worth—than you would buying some other things at a higher multiple.

L.G.: Because you've said over and over that the stock is woefully undervalued.

J.B.: Yes. Whenever you take cash and buy stock in some company, you're buying the earnings of that company. So if you're buying a dollar of earnings at Time Warner for seven or eight, then you'd rather do that than buy the earnings of a company you don't know for 12.

L.G.: How much stock would you buy back?

J.B.: I won't say. The point is, with all of those choices—whether you invest in the ongoing businesses, you look at acquisitions or you buy stock in Time Warner—what we will do will be aimed at simply maximizing the return on investment for our shareholders. That literally is the motivating way to decide.

L.G.: Because obviously that's the standard in the end by which your job here will be judged. What about NBC Universal?

J.B.: Well, that's just a speculation.

L.G.: It is. I just wondered if you're intrigued by that.

J.B.: You know, intrigued, do we have to use that word?

L.G.: No. Any word you want!

J.B.: Look, everyone speculates about what will happen to all of these media companies, and there's a fair amount of speculation as to whether G.E. will decide that the NBC Universal company benefits from being inside G.E. or not. To the extent it decides it doesn't, then they have to think of what to do with it. People leap to the idea, probably wrongly, as they say to sell it. That's not necessarily the case.

L.G.: Well, they keep saying, they won't.

J.B.: I know. If they did, they have a taxable sale or something, so I don't want to prejudge them, but they have to decide what's in their interest. But if they decided not to sell it, they may decide to spin it off, who knows? Anything that comes up, this is true of all the usual suspects, whether it's Scripps or NBC or Discovery, names come up in every sector we're in, and they ask, are we interested in it? Well, I would go back to what we just said.

L.G.: "They" being the kibitzers?

J.B.: Reporters, analysts, investors, everybody. We already said that we have kind of an obligation to look at anything that is out there that, if combined with our company, would produce a clear return for our shareholders. The problem with those speculations is that no one ever knows the price at which any of these things would be available. And we're kind of a big media company—at the lead if not the lead in most of the markets, from movie production, TV production, networks, magazine publishing. So if something comes up in one of those, we are an obvious candidate to consolidate and operate those businesses. We'd have to look at all of them, we will look at all things that happen. That does not mean we'll do them. It just means we'll have to look at them and see if they're available and they're things we think we could operate—and if we could, with a high degree of confidence, operate them at a return that exceeds the price of whichever method it would take to acquire them. We don't set out with a need or a predisposition to acquire them. We have kind of a responsibility to look at.

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