Time Warner stock up on AOL split; Target defeats Ackman; Counter bid rumored for Data Domain

By Cristal Cody

Tupelo, Miss., May 28 - Time Warner Inc.'s plans to spin off AOL LLC into an independent publicly traded company by the end of the year should remove the "anchor" that has weighed on the stock price, an analyst told Prospect News on Thursday.

Also on Thursday, Target Corp. fought off an activist shareholder to retain its incumbent nominees in a show of confidence from investors at the annual shareholders meeting.

Although William Ackman promised to keep his $55 million personal stake in Target shares if he was elected to the retailer's board, he probably will hold on to the stock despite his loss on Thursday, an analyst told Prospect News.

Meanwhile, a market source said Thursday that a counter bid could disarm NetApp, Inc.'s acquisition of Data Domain, Inc. for $25.00 a share in cash and stock.

Moving to Wall Street, stocks closed the day on a positive note.

The Dow Jones Industrial Average added 103.78 points, or 1.25%, to end at 8,403.80.

The Standard & Poor's 500 index gained 13.77 points, or 1.54%, to close at 906.83, and the Nasdaq Composite index rose 20.71 points, or 1.20%, to 1,751.79.

Time Warner/AOL split

Time Warner, which owns 95% of AOL, said it will purchase the remaining 5% stake in AOL from Google Inc. in the third quarter of 2009 and then spin the company off to shareholders.

"We believe that a separation will be the best outcome for both Time Warner and AOL," Time Warner chairman and chief executive officer Jeff Bewkes said in a statement. "The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses."

Tim Armstrong, AOL's chairman and CEO, said in the statement that the company will be using its "new status to retain and attract top talent."

AOL and Time Warner merged in a mega deal in 2001, but AOL's value peaked and it lost market share for internet access.

Frederick Moran, an analyst with the Benchmark Co., told Prospect News on Thursday that AOL is valued at about $5 billion, or $4.00 per each Time Warner share.

"AOL has been an anchor on Time Warner, which has clearly impaired the company's growth and once divested, it should make Time Warner's stock more attractive to the investment community," he said.

"Once AOL is divested, the potential for Time Warner to rekindle solid positive earnings growth becomes more real," he said. "This should be a fairly straightforward, tax-free spinoff where shareholders of Time Warner get shares in AOL. There are no meaningful regulatory approvals necessary."

Time Warner shares closed up 55 cents, or 2.39%, at $23.55 on Thursday.

Google's stock added $4.84, or 1.19%, to $410.40.

Target board fight

Target shareholders re-elected the company's four incumbent nominees and elected to keep the board size at 12 members, instead of 13 members as proposed by Ackman, according to a preliminary vote count.

"Today's outcome demonstrates the confidence Target shareholders have in our board's qualifications, diversity and experience to provide effective and independent oversight and direction to the company," Gregg Steinhafel, Target's chairman, president and CEO, said in a statement.

Ackman has fought over the company's direction with Target's management for several months and launched the proxy fight to seek five seats on the board after the Minneapolis-based retailer rejected a proposal to spin off assets into a real estate investment trust.

Ackman heads New York-based Pershing Square Capital Management LP, which owns 7.80% of outstanding Target shares and options. Earlier this week, Ackman committed to keeping his $55 million personal investment in Target stock for five years if elected to the board.

"I don't think he is likely to sell in the near term," Joe Feldman, an analyst with Telsey Advisory Group LLC, told Prospect News. "It may call into question his credibility if he sells too soon. I think he genuinely believes the stock has more upside, as do we."

Feldman said in a telephone interview from the shareholders meeting in Waukesha, Wis., that Target won with 70% of votes.

"The company won by a pretty wide margin, which speaks to an endorsement in the confidence in their board and how they're proposing to proceed strategically," he said.

The results don't change "our view of the company or the fundamentals one iota," said Feldman, who targets the stock at $46.00 to $48.00 a share. "The company's been operating marginally better."

Target shares fell 46 cents, or 1.16%, to close at $39.14 on Thursday. Shares have traded from $25.00 to $59.55 over the past year.

Bid for NetApp?

Sunnyvale, Calif.-based data storage company NetApp announced the $1.5 billion acquisition of Santa Clara, Calif.-based data backup provider Data Domain on May 20. But the company could become a target itself, a market source said Thursday.

"The biggest risk to the completion of the transaction could be a bid for NetApp, which has been frequently rumored as a bid target for IBM, HP, and Cisco," the source said. "However, NetApp has said that it wants to remain independent and said at the announcement of the merger that the likelihood of a takeover of NetApp was greatly exaggerated."

The acquisition of Data Domain is expected to close within 120 days.

The offer includes $11.45 in cash and 0.75 shares of NetApp for each share of Data Domain.

"We believe that the acquisition is likely to complete in two to four months, in line with NetApp's estimated closing date" barring a counter offer, the source said. "NetApp has secured irrevocable voting agreements for 22% of Data Domain's shares. Regulatory issues are unlikely."

Data Domain shares rose 11 cents, or 0.44%, to close at $24.93 on Thursday. NetApp's stock fell 27 cents, or 1.40%, to $18.95.

Mentioned in this article:

Data Domain, Inc. Nasdaq: DDUP

Google Inc. Nasdaq: GOOG

NetApp, Inc. Nasdaq: NTAP

Target Corp. NYSE: TGT

Time Warner Inc. NYSE: TWX

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