Charter Goes Over TWC's Head
Frustrated by Time Warner Cable's intransigence, Charter Communications executives ripped into TWC's go-to-market strategy as they took their company's takeover bid to Wall Street and TWC shareholders Tuesday.
In a nearly hour-long call with financial analysts after the markets closed, Charter Communications Inc. officials laid out the case for the $61.3 billion merger bid, which TW Cable's board of directors unanimously rejected late Monday. Charter officials also made a direct appeal to TWC shareholders, urging them to pressure their company's management and board to enter serious negotiations. (See Charter Makes $61B Offer to Acquire TWC , Charter's $61.3B Bid for TWC Rebuffed Again, and TWC Rebuffs Charter's Latest Offer.)
"We're asking Time Warner Cable shareholders to weigh in now," Charter president and CEO Tom Rutledge, a onetime TWC executive, said on the call. "We're trying to get management to engage."
Seeking to buttress their position, Charter executives spent much of the call ripping into TW Cable's "failed operating strategy" over at least the past five years and explaining how they would overhaul the much bigger MSO. Calling TWC "a turnaround project," they said they needed to act quickly to stave off a further deterioration in its assets and market value.
"The biggest risk in this whole business plan is timing because of the rapid loss of customers that Time Warner faces," Rutledge said. "Our only concern is market-timing risk."
Just on the video end of the cable business, Charter executives criticized TW Cable for losing more than 800,000 video subscribers last year, shedding broadband and voice customers in recent quarters, not upgrading its systems to all-digital channels, keeping too many analog channels, and carrying too few HD channels. "They allowed their video products to become inferior," said John Bickham, Charter's COO and another former TWC executive.
On the broadband side, the officials faulted TWC for offering "substandard" broadband products, not boosting broadband speeds high enough, competing too much on price, and nickel and diming customers with hidden fees and taxes. "This strategy results in high disconnects and churn rates," Bickham said. "They wound up looking much like their telco competitors."
Citing the revival of their company's once-moribund cable operations, Charter executives sought to prove they could turn around TW Cable in a similar fashion. Armed with a hefty PowerPoint presentation, they aimed to show that they could restore TWC to its former glory by investing heavily in all-digital system upgrades, putting more digital set-top boxes in each subscriber's home, increasing the number of HD channels in each system to 100 or more, boosting broadband speeds, upgrading the company's phone offerings, and simplifying its pricing structure, among other measures.
In addition to raising revenue, Charter officials said that they could wring out $750 million in operating synergies from TW Cable's annual operating costs over time. TWC executives have challenged this figure, arguing that only about $500 million in operating synergies could be realized.
With Time Warner Cable's board and management showing no signs of giving in yet, speculation has run rampant that TWC is still looking for a white knight to save it from Charter's clutches. Industry pundits have frequently mentioned both Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Cox Communications Inc. as friendly suitors for TWC or partners for Charter in carving up the company.
In the call with analysts, Charter executives shrugged off the notion of another MSO or bidder swooping in right now to thwart their company. "We're not aware of any other bidder," Rutledge said. "So our bid stands alone."
— Alan Breznick, Cable/Video Practice Leader, Light Reading