Light Reading

TW Cable Strikes Back

Alan Breznick
1/16/2014
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Seeking to seize the offensive in its increasingly bitter battle with Charter Communications, Time Warner Cable blasted Charter's latest offer as "grossly inadequate," stoutly defended its operational track record, and buttressed its claims for a much higher buyout price.

In a war of dueling web presentations, Time Warner Cable Inc. (NYSE: TWC) posted its own PowerPoint display on the company's website Wednesday as it sought to counter Charter Communications Inc. 's blistering criticism of its operating performance over the past five years. The 10-slide presentation -- which followed public accusations by TW Cable Chairman & CEO Rob Marcus that Charter was trying to "steal" his company -- spells out TWC's case for a substantially higher bid and bashes Charter for its "low-ball offers" and harsh critique of TWC's operational performance.

"Charter's proposal fails to reflect the significant value of TWC's high-quality assets, unique scale, synergy potential, growth opportunities, and strong financial position," TW Cable asserts in the presentation. "It is materially below precedent transaction multiples, especially transactions of a similar scale to TWC."

In its third and latest bid made public Monday, Charter is offering to pay about $61.3 billion, or $132.50 per share, for TW Cable. That offer followed an initial bid of $114 per TWC share in July and a second bid of $127 per share in October. TW Cable's management and board have soundly rejected all three proposals so far. (See Charter Makes $61B Offer to Acquire TWC and Charter's $61.3B Bid for TWC Rebuffed Again.)

Frustrated by the lack of progress, Charter executives ripped into TWC's go-to-market strategy as they took their takeover bid to Wall Street and TWC shareholders on Tuesday. In a conference call with financial analysts, Charter officials laid out the case for their latest buyout proposal and made a direct appeal to TWC shareholders, urging them to pressure their company's management and board to start serious negotiations. (See Charter Goes Over TWC's Head.)

"We're asking Time Warner Cable shareholders to weigh in now," said Charter President & CEO Tom Rutledge. "We're trying to get management to engage."

Countering those claims, TW Cable officials insist that they have seriously engaged in talks with Charter since last May, meeting with Charter executives numerous times in May, June, July, and December. "We have engaged with Charter, but Charter is not prepared to pay for a one-of-a-kind asset that Tom Rutledge referred to today as the biggest and best M&A option available," TWC said in a terse statement issued shortly after the Charter conference call Tuesday evening.

Challenging Charter's valuation of the No. 2 US MSO, TWC executives argue that their company is actually worth substantially more than the $132.50 per share in Charter's latest offer. They peg TWC's market value at $160 per share, based upon its status as a "premier pure-play cable company," its "unique" scale and attributes, and such earlier major cable industry deals as Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s $71.4 billion acquisition of AT&T Broadband more than a decade ago and the joint $17.6 billion purchase of Adelphia Communications' assets by TWC and Comcast in 2005.

Stung by Charter's withering criticism of TW Cable's operating track record, TWC executives also mount an ardent defense of their company's performance over the past few years. Instead of the "turnaround project" depicted by Charter officials, they portray TWC as an "innovative tech pioneer," citing the company's rollouts of TV Everywhere, smart-home monitoring, WiFi, cloud-based guide, and business services throughout the US. They also point to TWC's nationwide fiber backbone, "deep metro fiber assets," national content delivery network, and "extensive geographic footprint," among other assets.

"TWC is uniquely positioned to deliver scale in the cable industry," the company proclaims in its web presentation, noting that it passes nearly 30 million homes and has more than 15 million residential and commercial customers. "TWC is the only independent, publicly traded cable company of scale."

With the two dueling MSOs now dug deep into their respective trenches quite publicly, it's not clear which one, if either, will blink first. But the battle over TWC's future is likely to get nastier before it gets settled. Stay tuned.

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

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albreznick
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albreznick,
User Rank: Blogger
1/17/2014 | 6:36:13 PM
Re: Pissing match
Yep, unless Charterisdeliberately trying to undercut TWC employee morate and thereby hurt the company's performance even more. Maybe clever in the short-term but awfully dangerous in the long-term.  
KBode
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KBode,
User Rank: Light Sabre
1/17/2014 | 6:23:55 PM
Re: Pissing match
Yeah I didn't even think about the impact that openly degrading the company you're interested in acquiring could have on employees. It seems entirely counter-productive from a professionalism standpoint.
Phil_Britt
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Phil_Britt,
User Rank: Light Beer
1/17/2014 | 6:18:36 PM
Re: Pissing match
Reminds me of the old adage: Everything is for sale at the right price.

If Charter raises its price enought, or if market conditions cause Time Warner's price to fall enough, I think the TW execs (who are likely major shareholders) will likely drop all of the negative commentary and will see Charter as their best friend.
albreznick
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albreznick,
User Rank: Blogger
1/17/2014 | 6:07:03 PM
Re: Pissing match
I tend to agree. And I wonder if Charter is overplaying its hand. Rutledge may end up stiffening TWC's resolve to resist the merger even further. He's certainly not making many friends and admirers at TWC HQs at Columbus Circle.
KBode
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KBode,
User Rank: Light Sabre
1/17/2014 | 1:34:13 PM
Re: Pissing match
It does seem a little more public and toxic than these type of M&A efforts usually are, yes. I understand that Charter wants to portray to investors that their offer was fair and vice versa for Time Warner Cable, though no I've never seen an acquiring company openly debase the products and services of a company they're acquiring, especially when their own products and services aren't entire up to snuff.

Honestly it seems a little bit like amateur hour...especially if you consider the months and months of press leaks by Charter ahead of the actual formal mating dance this last few weeks. 
JimONeill@Ooyala
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JimONeill@Ooyala,
User Rank: Light Beer
1/16/2014 | 6:29:23 PM
Re: Pissing match
Hard to see it as not being a "wave of the future," something we likely will see again as more consolidation occurs, especially when it engenders unwanted offers like Charter's for TWC.

More than anything, though, it really seems just like an effort by TWC management to get the most for their company that they can... just as Glenn Britt said before he retired (I THINK it was Glenn), management has the obligation to get the best price they can.

Is the infighting a little more public than usual? Yep. It doesn make for a great read!

Jim
albreznick
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albreznick,
User Rank: Blogger
1/16/2014 | 5:56:07 PM
Pissing match
Let's step back for a second and look at what's kappening here. Have we ever seen two large MSOs fight tooth-and-nail like this so publicly and bash each other back and forth? Whatver happened to the congenial cable club? Is this the wave of the future for US cable? Or just a fluke driven by some very unique circumstances?   
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