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As expected for months, Charter Communications, Inc. today formally offered Time Warner Cable shareholders $132.50 per share to assume ownership of the nation’s second largest cable operator in a deal worth more than $61 billion, including debt.
Bloomberg News this afternoon reported Charter Cable has offered $83 in cash for each outstanding share of TWC stock, as well as about $49.50 in Charter stock. That makes the attempted takeover the third largest merger deal worldwide since 2009.
Rutledge
Charter CEO Thomas Rutledge, a former executive at TWC and Cablevision would lead the combined enterprise under the Charter Cable name, likely pushing out TWC’s new CEO Robert Marcus. Rutledge argues that combining Charter and TWC would bring about considerable cost savings, particularly for spiraling programming costs. Analysts say the deal would also mean a reduction in Time Warner Cable’s workforce, especially in middle management, as operations are consolidated around Charter’s leadership.
Rutledge today said he privately approached Time Warner Cable executives with an offer in late December.
“We haven’t received a serious response,” Rutledge said today in a Bloomberg News telephone interview. “Our objective was to talk to management and try to get them engaged. They have not, so we’re going to make our case to shareholders about why this deal is good for them and hope they ask management and the board to watch out for the interests of shareholders.”
[flv]http://www.phillipdampier.com/video/CNBC Marangi on TWC Deal 1-13-14.mp4[/flv]
Chris Marangi from Gamco tells CNBC Charter Communications’ proposal to buy Time Warner Cable for $61.3 billion is probably too low, but the cable industry is “ripe for consolidation” and further mergers are likely. (1:39)
Time Warner Cable’s chief financial officer Artie Minson reportedly requested Charter make a higher bid that included more cash, but Charter refused.
Malone
The man pulling the levers behind Charter’s curtain is Dr. John Malone, former CEO of Tele-Communications, Inc., which was America’s largest cable operator in the late 1980s and 1990s. Malone’s Liberty Media is Charter Communications’ largest single investor. Malone has long argued for consolidation and cooperation in the cable industry to boost profits and control programming costs that drive up cable television bills.
Malone specializes in structured mergers and acquisitions that result in tax-free buyouts. Charter’s offer relies heavily on debt financing and would allow Charter to shield its ongoing net operating losses from taxes.
Malone indicated he is willing to play hardball to force a merger.
Malone told investors he expected Time Warner Cable to resist a takeover by Charter — America’s fourth largest cable company — so he is prepared to nominate Charter-friendly directors for Time Warner Cable’s board before nominations close Feb. 15. Time Warner Cable shareholders could force the merger by voting for Malone’s handpicked directors, who would promptly approve Charter’s takeover offer. But Time Warner executives will likely argue Charter’s offer is disadvantageous for TWC shareholders.
“Since we made our first proposal, Time Warner Cable has lost another half million video customers,” Rutledge said. “Their customer service continues to decline in every measure. We can improve it. We have a demonstrated track record of improving customer service. It’s a question of credibility.”
Consumer Reports reports otherwise. Charter Communications has perennially been ranked America’s second worst Internet Service Provider cable operator in annual reader surveys. Only Mediacom is ranked lower among cable operators.
Now that Charter’s offer has gone public, investors suspect other cable operators may soon consider bidding for Time Warner Cable as well. Comcast is a likely bidder with an interest is taking control of Time Warner Cable’s systems in New York City and certain midwestern markets. Comcast would also like TWC’s regional sports channels serving southern California.
Customers will have no say in the matter, except through appeals to federal regulators which must approve any sale.
Unlike TWC, Charter Cable has usage limits on their broadband service.
[flv]http://www.phillipdampier.com/video/CNBC CNBC David Faber on TWC Deal 1-13-14.mp4[/flv]
CNBC’s David Faber reports today’s offer from Charter Communications is not technically a “bid” for Time Warner Cable. Instead, it’s a public offer to hopefully force TWC executives to take Charter’s offer more seriously. (3:25)
Anyway you look at it, this is BAD NEWS for TWC Broadband customers. TWC High Speed Internet has been extremely reliable over the last 12 years I’ve had it. Other than the consumption based billing scare of 2009, I have had no issue with TWC Internet service. I hope this offer will not be approved by either the FCC or FTC! Consumers have everything to lose if Charter becomes to the dominant ISP/Cable provider of North America. On a side note, Google Fiber can’t get to my neighborhood fast enough (especially if the Charter buyout succeeds)!
As another resident of Austin, I have to completely agree with Milan. I’ve had no problems with TWC broadband in the last 7 years, other than the price. If I can’t get Google Fiber at my apartment complex once it hits the neighborhood, I will have to move, because there’s no way I’m giving my money to Charter.
I have followed Charter for the longest time and have always read that they were on the verge of bankrupting or hemorrhaging money so I don’t understand how is this even possible.
Maybe a “structural adjustment” of the industry is the whole point. Two spectres haunt the cable companies. One of them is that, in the long term, Hybid Fiber Coax and other forms of FTTx cannot compete with FTTH. Yes, these things are cheaper in the first year but if you have a planning horizon of more than 5 years ahead, FTTH wins under almost all circumstances. People think $1500 or $3000 a house is a crazy number, but if you average that over 30 years (which is less than the projected lifetime of the plant) you are talking a tiny… Read more »