Time Warner restructures Road Runner stake, cuts estimates

Time Warner Inc. (NYSE: TWX) said Monday it would restructure its ownership in the Road Runner high-speed Internet service. Time Warner also reduced its earnings growth target, but said America Online's quarter was on track.

Shares of Time Warner fell 1.78 to 72.72 at the end of Friday's session.

The cable and media giant said it will increase its stake in Road Runner as part of a deal struck between AT&T Corp. (NYSE: T), one of the other shareholders in the service, and the U.S. Justice Department.

Under the agreement, the 20 percent stake in Road Runner held by Microsoft Corp. (Nasdaq: MSFT) and Compaq (NYSE: CPQ) will be redeemed, and Road Runner will distribute substantially all of its assets to Time Warner and its affiliates, and to AT&T Broadband.

Time Warner expects to recognize a one-time restructuring charge of $20 million to $40 million in the fourth quarter of 2000.

The restructuring will end Road Runner's exclusivity agreement with Time Warner Cable, which was originally set to expire at the end of 2001, and will move along the cable company's plan to offer multiple Internet Service Providers (ISPs) on its systems. The opening of cable lines to rival ISP's was a key condition for the U.S. Federal Trade Commission's approval of the Time Warner- AOL merger.

Starting in April, AT&T broadband will continue to offer the Road Runner service to its cable customers for a transitional period of up to 15 months under a new service agreement with Time Warner Cable's new Road Runner company.

Time Warner also lowered it earnings growth projections for fiscal year 2000. Time Warner is expected to report earnings of 20 cents a share, according to earnings tracking firm First Call Corp.

The company expects earnings before interest, taxes and amortization to grow 11 percent for the full year 2000, compared with previous expectations of 12 to 13 percent growth. Advertising revenue would be in the "mid-teens," according to the company.

The shortfall was blamed on weaker cable network advertising revenue, weaker music sales and disappointing box office sales.

On the bright side, America Online said it was "currently on track to post record growth in the December quarter." The company also said membership growth and advertising/commerce revenue were on track. AOL is expected to report earnings of 14 cents a share, according to First Call.

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