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What's Next for Charter?

Alan Breznick
2/14/2014
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Like a fallen Olympic skier, Charter CEO Tom Rutledge now knows all about the agony of defeat.

Just two days after triumphantly unveiling Charter Communications Inc. 's impressive slate of 13 independent nominees for the Time Warner Cable Inc. (NYSE: TWC) board of directors, Rutledge saw his dreams of a cable dynasty go up in smoke Thursday morning when Comcast Corp. (Nasdaq: CMCSA, CMCSK) swept in with a far more attractive $45.2 billion offer for TW Cable. With the deal immediately accepted by TW's relieved and grateful management team, Rutledge's months-long quest has suddenly come to a screeching halt just when he was sensing the thrill of victory. (See Comcast Strikes $45B Deal for TWC.)

Bowing to the inevitable, Charter quickly acknowledged that sobering reality with a brief written statement Thursday. In the statement, the company sought to make the hard-to-believe case that it's really better off without TWC after all.

"Charter has always maintained that our greatest opportunity to create value for our subscribers is by executing our current business plan, and that we will continue to be disciplined in this and any other M&A activity we pursue," the statement said. Company officials declined to say more.

To be fair, Rutledge has made that argument before. On a conference call with financial analysts and press last month, he insisted that Charter would simply re-focus on its own operations and set its sights elsewhere if its hostile takeover of TW Cable failed.

But investors didn't buy that story on Thursday. Charter's stock price, which started the day at $137.57 per share, sank more than 6% to $128.91 by the end of the day after falling as much as 9% in early-morning trading following the announcement of the Comcast-TWC deal.

It probably didn't help matters any that Time Warner Cable CEO Rob Marcus, understandably savoring his company's successful rebuff of Charter, publicly dissed Charter's stock in a conference call Thursday morning. When asked by analysts why TWC would accept an all-stock offer from Comcast when it had been insisting on largely cash from Charter, Marcus replied that comparing the stock of Comcast and Charter was like comparing "apples and oranges."

And it must have hurt Rutledge and his management team even more to know that Comcast might never have made its bid for TWC if Charter hadn't started peddling some of TWC's prime systems to Comcast. In a recent gambit to raise cash and make a deal more appealing to TWC management, Charter reportedly offered to sell TWC's New York City, New England, and North Carolina cable clusters to Comcast if its takeover attempt succeeded. Intrigued by the idea, Comcast apparently began discussing the systems with TWC and the discussions quickly escalated from there. Talk about unintended consequences. (See Comcast May Join Charter Team.)

So now that Charter has lost out to Comcast for the big TWC prize, what does the fourth-largest US MSO do now to boost its size and play with the big boys? Well, it could try to buy some or all of the cable systems with 3 million subscribers that the combined Comcast-TWC plans to sell to cap its size at 30 million video customers. Comcast chairman and CEO Brian Roberts made it clear Thursday that he's open to selling those homes to anybody, including the company that he outmaneuvered.

But those systems, which have not been identified yet, will likely be scattered throughout the US and probably not give Charter the major metro markets and influence that it wants. Comcast, which prides itself on operating in 20 of the top 25 US markets, isn't likely to sell off a Dallas, Houston, Seattle, or Miami cable system cluster to Charter or anybody else. More likely, Comcast will try to sell off smaller systems in less concentrated areas, the same type that Charter predominantly has.

Nor do there appear to be many other places for Charter to turn for a big, quick spike in growth in the increasingly consolidated US cable market. So, unless Rutledge and his team can somehow convince a Cox Communications Inc. , Cablevision Systems Corp. (NYSE: CVC), or Bright House Networks to sell out, Charter may still be champing at the bit for some time to come.

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

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albreznick
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albreznick,
User Rank: Blogger
2/18/2014 | 9:42:31 PM
Re: Bright House
I agree. I think the Charter team still needs a couple more years to really prove themselves and show that they, and not Neil Smit and his former Charter crew, are the ones turned Charter around. Charter's Q4 earnings call is this Friday morning. Should be fun.  
KBode
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KBode,
User Rank: Light Sabre
2/14/2014 | 7:27:01 PM
Re: Bright House
BECAUSE JOHN MALONE WILLS IT! :)

I agree, they have no reasonable reason to sell. John Malone gets what he wants, though. Or he used to, anyway. These days he demands things and then something else entirely happens, as evident by this week's news. 

I wouldn't sell to Charter personally. And I think they have a pretty fresh executive team that needs to prove they know how to turn things around before Wall Street gets even remotely bullish on the idea of them taking on more.
spc_isdnip
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spc_isdnip,
User Rank: Lightning
2/14/2014 | 5:40:35 PM
Re: Bright House
Bright House and Cox are both privately owned, I think both by families, so they have no particular reason to sell out.  They are both well run, in much better shape than Charter, and profitable, so why even entertain a deal from the schlockmeister Malone?
mendyk
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mendyk,
User Rank: Light Sabre
2/14/2014 | 3:39:27 PM
Why bother
Is there a point to accumulating a bunch of mediocre properties to go along with the less-than-stellar stuff you already have? We're not better, just ... bigger.
KBode
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KBode,
User Rank: Light Sabre
2/14/2014 | 8:47:40 AM
Bright House
Does Bright House make geographic sense for Charter? I'd need to look at a map again and remind myself if Charter has any Southern connecting markets.

Cox hasn't seemed to warm to the idea of an acquisition in recent months, and Cablevision in NY would likely be unlikely if it was already rumored Charter wanted to sell off NYC To Comcast if their deal had gone through, yeah?
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