Notable Calls

Citigroup is out with a major call on Time Warner (NYSE:TWX) saying they expect the co to reach an agreement with Time Warner Cable (NYSE:TWC).

Specifically, they expect a 3-step transaction: 1) TWX sells NY Group for a larger public stake in TWC, 2) TWC to pay a 1-time special dividend of about $6 per share, 3) TWX to distribute its stake in TWC to existing TWX equity holders.

Firm sees two potential benefits of the proposed transaction for TWX:

1) Split from TWC will highlight the “core” TWX valuation at just 10.3x ’08 EPS;

2) Special dividend should generate $1.35 per TWX share in cash, or 9% of current TWX value and 17% of the “core” equity value. They do not expect TWX to use dividend proceeds to repurchase shares.

Citigroup expects Time Warner and Time Warner Cable to make a joint announcement regarding Time Warner’s majority stake in the cable company some time over the next few months. Indeed, such an announcement could occur as soon as Wednesday, when both companies report Q108 earnings.

They think TWX’s equity is particularly attractive at these levels, given that the “core” is trading well below peer P/E multiples, coupled with a handful of potential catalysts.

As such, the firm continues to rate Time Warner a Buy. Maintains Buy rating at $25 price target.

Notablecalls: This is a major positive call from Citi's Jason Bazinet. I expect to see a significant upside move ($0.5-$0.75 is significant in TWX) in the stock today as there's a possiblity the deal will be announced as soon as tomorrow.