Subject: Re: Time Warner
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Sat, 28 Apr 2001 13:55:00 -0700 (PDT)

OK Gang:

Well, I,ve been crunching numbers all day, and haven,t yet gotten to the 
writing.  I've attached Dylan's original responses for reference.  Figure 
it'll be a memo from Time's CEO to the Time Board.

I,ve leaving now for Mendocino, but will be back early tomorrow to finish 
this up.  Please check out the spreadsheet.

The case is sort of confusing*how do Time,s analysts value Time at $189-212, 
when they,re trading at 109 the day before the announcement of the deal with 
Warner.  That doesn,t jive.  Are they saying that, absent synergies, the 
combined Time/Warner is worth the enterprise value of Time at 189-212 plus 
the enterprise value of Warner at $63-71 (again, the analysts valuation)?  
That just seems ridiculous, give where they,re trading.

Anyway, here,s where my analysis is heading----tell me if I,m smoking crack.

The deal isn,t really $175 per share.  It,s $175 LESS the taxes that will 
have to paid (since it,s a purchase deal) PLUS the value of the tax shield 
created by the net increase of $8.9B in new debt that Paramount will take 
on.  Does this seem right?  Could folks look at my spreadsheet?  I,ve got it 
conceptually set up, but I,m not quite sure how to calculate the taxes paid 
under the purchase method or the value of the tax shield (assuming that this 
is correct.  If I,m just completely out of it with this angle, just let me 
know.  In any case, seems that there,s some value in the tax-free 
(Time-Warner) versus the taxable (Time-Paramount) deals.  Presumably, we 
could take the total enterprise value of Time-Warner (nontaxed) and compared 
it to the total enterprise of Paramount-Time (taxed) and compare the two.  I,
ve got a hunch that the Time-Warner number may win the day, but I haven,t 
gotten that far in the crunching yet.

In any case, I,ll be back around Noon tomorrow and will crank the puppy out.

Best,
Jeff