Charter Communications Inc. (CHTR) offered to buy Time Warner Cable Inc. (TWC) for about $132.50 a share, valuing the second-largest U.S. cable provider at more than $61 billion, including debt.
The proposal includes about $83 cash per share and about $49.50 in Charter stock, Tom Rutledge, Charter’s chief executive officer, said in an interview. The offer is the third-largest for any global company since 2009, data compiled by Bloomberg show.
Charter today sent a letter to Time Warner Cable Chief Executive Officer Rob Marcus, explaining why the company’s offer is beneficial for shareholders. Charter is attempting to acquire Time Warner Cable, a company with an enterprise value more than twice Charter’s size, to create a provider of TV, Internet and phone for about 20 million customers in 38 states. Rutledge said he last proposed an offer in late December, around Christmas, which Marcus rejected.
“We haven’t received a serious response,” Rutledge said today in a 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.”
Rutledge and Charter Chief Financial Officer Chris Winfrey met with Marcus and Time Warner Cable CFO Artie Minson in December to walk through details of the offer, including structure, financing, tax and cash flow implications, according to the letter. Charter indicated its willingness then to submit a proposal in the low $130s, including a cash component of $83.
When Time Warner Cable responded to that with a request for a higher bid including a higher cash component, Charter determined it wasn’t interested in pursuing a merger agreement, according to the letter.
Time Warner Cable’s response was “not a serious offer,” said Rutledge, who declined to say the exact price. “They knew the price they were offering was designed to not appeal.”
Charter is preserving “all options going forward,” including nominating a slate of directors to Time Warner Cable’s board, according to a person familiar with the matter. Still, Rutledge would prefer to complete a friendly cash and stock deal as soon as possible, he said. Charter has “fully negotiated” financing and can be “in a position to sign commitment letters in a matter of days,” according to the letter.
Time Warner Cable shareholders would own about 45 percent of the new company in the proposed deal, Rutledge said. A deal would give the combined company more leverage in future negotiations with content companies, who have been raising annual prices at about 10 percent per year. An acquisition would also allow Charter, the fourth-largest cable operator, to use its net operating losses as a future tax shield.
Moreover, Charter management would improve Time Warner Cable’s customer service and restart video growth, Rutledge said.
“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.”
Time Warner Cable has resisted Charter’s approaches to reach a friendly deal on several occasions over the past few months: in June, October and, most recently, December, Rutledge said.
Bloomberg first reported Charter’s intent to make an offer for Time Warner Cable last month. A successful takeover would be the largest of a cable company since Comcast Corp. (CMCSA) acquired AT&T Broadband in 2001 for about $72 billion.
Billionaire John Malone, whose Liberty Media Corp. (LMCA) is Charter’s largest shareholder, told investors last month he expects Time Warner Cable to reject Charter’s opening bid, according to people familiar with the matter. He has had internal discussions with Rutledge about a list of directors to name to Time Warner Cable’s board before the window for nominations closes on Feb. 15, another person said.
Liberty, the majority owner of Sirius XM Holdings Inc., announced an all-stock offer for the outstanding shares of the satellite-radio company last week. That deal may help fund an offer for Time Warner Cable by giving Liberty more cash flow and additional assets to borrow against, Chief Executive Officer Greg Maffei said in an interview.
Charter’s offer is for all of Time Warner Cable, which has about 12 million video customers and cable assets in cities including New York City, Los Angeles and Dallas.
Comcast is considering a bid for Time Warner Cable, either on its own or with Charter, people with knowledge of the matter have said. The largest U.S. cable operator may be interested in acquiring the New York market, some midwestern cable regions and Time Warner Cable’s regional sports networks, which broadcast L.A. Dodgers and L.A. Lakers games, Shahid Khan, co-founder and chairman of Mediamorph Inc., said in an interview.
A Charter deal for Time Warner Cable could be completed first, before Comcast obtains divested assets, according to Craig Moffett, an analyst at MoffettNathason LLC.
Since 2009, there have been just two larger takeover offers, and both were accepted. Only Pfizer Inc.’s $64.2 billion deal for Wyeth LLC in 2009 and Verizon Communications Inc.’s $130 billion acquisition of Vodafone Group Plc’s Verizon Wireless stake last year top the value of Charter’s offer.
Goldman Sachs Group Inc. and LionTree Advisors LLC are serving as lead financial advisers to Charter. Guggenheim Securities LLC is also advisingCharter.
Bank of America Corp., Credit Suisse Group AG, Deutsche Bank AG and Goldman would provide the financing for a transaction. Law firms Wachtell Lipton Rosen & Katz and Kirkland & Ellis LLP are representing Charter.