LOS ANGELES (AP) — Time Warner Inc. said Wednesday that it will spin off the magazine unit behind Time, Sports Illustrated and People into a separate, publicly traded company by the end of the year, ending a media marriage that has lasted more than two decades.
CEO Jeff Bewkes said in a statement Wednesday that the decision to split off the Time Inc. magazine company will give Time Warner "strategic clarity" and enable it to focus on its TV networks including TNT, HBO and CNN, and its Warner Bros. studio, which produces movies and TV shows.
He said the move would create value for shareholders, similar to the company's previous spin-offs of Time Warner Cable and AOL.
In recent weeks, Time Warner had been in talks to combine all of Meredith Corp.'s magazines with Time Inc.'s lifestyle titles such as People, InStyle and Real Simple. But talks broke down over a value for the combined company and over which magazines from Time Inc. would be included in the mix, according to a person familiar with the matter. The person was not authorized to speak publicly and spoke on condition of anonymity.
Meredith said Wednesday that it respected Time Warner's decision and hoped to work with it on future opportunities. Des Moines, Iowa-based Meredith publishes magazines aimed at women such as Better Homes and Gardens, Fitness and Family Circle.
Time Warner shares rose 79 cents to $56.24 in after-hours trading following the announcement, after closing up 41 cents at $55.46. Shares of Meredith fell 80 cents, or 2 percent, to $39.50 after-hours. It closed down 86 cents at $40.30 in the regular session.
Analysts have estimated that the Time Inc. division is worth around $2.5 billion.
Time Warner said the spin-off would be tax-free to its shareholders.
The move completes the yearslong unwinding of a media and telecoms giant that reached its peak size in 2001 when America Online, an Internet access company, used $147 billion worth of inflated stock to buy Time Warner, in what has been regarded as the worst corporate merger of all time, because expected company synergies never materialized. On Wednesday, Time Warner's market value was about $52 billion.
Over the years, Time Warner moved to spin off the cable TV hookup business as well as AOL in order to focus on its profitable and growing TV and movie businesses.
Matthew Harrigan, an analyst with Wunderlich Securities, said shareholders have wanted the spin-off of the challenged magazine business for some time, mainly because the rise of Internet advertising has steadily eroded ad revenue from print publications.
Investors had come to see the magazine business as a drag on revenues and profits. According to the Publishers Information Bureau, U.S. magazine advertising revenue fell 3 percent in 2012 to $21 billion.
"Investors like pure plays and some instances where there are genuine synergies," he said. "I think they concluded it was a bit of an odd duck."
The spun-off company will have to attract investors betting on the successful transition of magazines into the digital world, which has been slow in coming. In the second half of last year, digital versions of U.S. magazines represented just 2.4 percent of circulation while overall circulation was flat at about 298 million copies, according to the Alliance for Audited Media.
Bewkes said a separate Time Inc. "will now be able to attract a more natural stockholder base."
The person familiar with the matter said that the parent company will continue to be known as Time Warner, keeping Time in its name despite the spin-off.
In conjunction with the move, Time Inc. CEO Laura Lang said she would step down after a successor had been found. In a memo to staff she said that, "taking the company through a transition to the public markets is not where my passion lies." She recently presided over the layoff of about 500 people, or 6 percent of Time Inc.'s global staff of 8,000.
Time got its start in 1922 when Henry Luce and Briton Hadden quit their jobs at the Baltimore News and found 70 investors to put up $85,675 to start the magazine, according to a company website.
Over the years the company launched enduring titles such as Fortune in 1930, Life in 1936, Sports Illustrated in 1954, and People in 1974. It bought a majority stake in Warner Communications Inc. in 1989 and the rest of it a year later.