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Charter's $61.3B Bid for TWC Rebuffed Again

Alan Breznick
1/13/2014
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Charter Communications President and CEO Tom Rutledge is tired of pussyfooting around with Time Warner Cable. But his patience is about to be tested further. (See Charter Makes $61B Offer to Acquire TWC .)

In a long-awaited move, Charter Communications Inc. formally bid more than $61 billion, including debt, for Time Warner Cable Inc. (NYSE: TWC) late Monday afternoon. The unsolicited offer, which pegs TW Cable's market value at about $37.3 billion, or $132.50 per share, consists of nearly two-thirds cash with the rest in Charter stock, according to various press reports.

Very shortly thereafter, though, the TWC board unanimously rejected the third offer as "grossly inadequate," saying it falls short of the standards set by past cable deals. (See TWC Rebuffs Charter's Latest Offer.)

In an open letter to new TW Cable Chairman and CEO Rob Marcus that Charter posted on its website earlier, Rutledge said his company was making the bid now after repeated overtures to its fellow MSO over the past six months made no headway. He also noted that TW Cable officials rejected Charter's previous offer in talks held last month, prompting Charter executives to go over their heads to TWC shareholders.

But, in a press release issued a couple of hours later, Marcus called the Charter offer "a non-starter" because it represents an EBITDA multiple of only about seven percent. Marcus also said the actual value delivered to TWC shareholders could be well below that, because shareholders would largely be receiving Charter stock with its inherent risks.

Marcus' statement appeared to be a direct reply to Rutledge's open letter. It was in keeping with past indications that TW Cable is reportedly seeking more like $160 per share.

If successful, the takeover of the second largest US MSO by the fourth largest MSO would make the new Charter-TWC a much bigger power in the American pay TV market. But the new company would still have significantly fewer customers than the two market giants -- Comcast Corp. (Nasdaq: CMCSA, CMCSK) and DirecTV Group Inc. (NYSE: DTV).

For months, Rutledge has argued that his respected management team can run TW Cable more efficiently and profitably. TWC suffered one of the worst financial reporting periods in its history in the third quarter, shedding a whopping 306,000 basic video; 24,000 broadband; and 128,000 phone customers in the wake of a bitter, drawn-out, retransmission-consent battle with CBS Corp. (NYSE: CBS). (See TW Cable Hemorrhages Subs.)

In his letter to Marcus, Rutledge held out a peace branch, saying Charter remains "open to real engagement" with TWC and making term revisions. But he also made it clear that Charter is moving ahead with its offer and "preserving all options going forward."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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albreznick
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albreznick,
User Rank: Blogger
1/15/2014 | 12:02:59 PM
Re: Holding out
Good question, Dan. Not clear what the ansween is. TWC could be counting on either Comcast or Cox to come through for it. But both prospects are looking less likely right now.  
DOShea
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DOShea,
User Rank: Blogger
1/13/2014 | 10:10:28 PM
Holding out
What--or who--is TWC holding out for? Is there another company that's going to deliver anything closer to the offer it feels it deserves?
DanJones
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DanJones,
User Rank: Blogger
1/13/2014 | 6:59:20 PM
TWC has just rejected the bid.
TWC has rejected the bid:

Rob Marcus, Time Warner Cable's Chairman and Chief Executive Officer, said: "Charter's latest proposal is a non-starter. First and foremost, it substantially undervalues TWC and would represent an EBITDA multiple of approximately 7X, well below past transactions in the cable sector. Indeed, our high-quality assets, unique scale, synergy potential, growth opportunities and strong financial position should command a premium valuation compared to precedent transactions, not the discount offered by Charter. Not only is the nominal valuation far too low, but because a significant portion of the purchase price would be in Charter stock, the actual value delivered to TWC shareholders could be substantially lower given the valuation, operational, and significant balance sheet risks embedded in Charter's stock."
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