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Is TWC Sitting in Catbird Seat Now?

Alan Breznick
4/29/2015

Will Charter's undying love for Time Warner Cable remain unrequited?

Could be. Despite the quite predictable news reports that Charter Communications Inc. executives are already preparing a new and improved offer for Time Warner Cable Inc. (NYSE: TWC) in the wake of Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s collapsed $45.2 billion bid for TWC late last week, there's still good reason to believe that TWC won't just walk happily down the aisle with Charter now. In fact, even though TW Cable executives are reportedly open to preliminary merger discussions with Charter, don't be shocked if the No. 2 US MSO ends up eloping with somebody else in cable land or even ends up staying single for a while. (See Comcast Formally Ends Its Bid for TWC and What If the Comcast Merger Fails?)

For one thing, as various industry analysts have noted, Time Warner Cable is now in a notably stronger operating and financial position than it was some 15 months ago, when Charter launched its failed hostile takeover attempt. With two solid quarters of growth behind it, TWC's outlook as an independent entity looks considerably brighter than it once did, which means that it could try to make a go of it alone or at least force Charter to pay a much higher price than the one it offered last year. (See Charter's $61.3B Bid for TWC Rebuffed Again.)

For another, TW Cable has several potential tools at its disposal if it wants to stave off another unwanted bid by Charter, which is the fourth-largest US MSO with more than 4 million video subscribers. Indeed, just like Charter and Comcast, TWC has plenty of cash, stock and other means to bulk up by buying up other cable operators, making itself less digestible by a potential acquirer.

Most notably, TWC could swoop in and purchase its smaller cousin, Bright House Networks , the sixth-largest US MSO with more than 2 million video customers and once part of the Time Warner Entertainment/Advance-Newhouse Partnership. With Charter's $10.4 billion deal to buy Bright House conditioned on Comcast's takeover of TWC going through, Bright House is now free to choose its own fate again. Might its leaders not prefer to link up with their old buddies at TWC rather than their Charter counterparts? (See Charter's Bright Idea: The Big Payoff.)

Or, like the ever-hungry Charter, Time Warner Cable could develop an appetite for other smaller but still major cable operators, such as Suddenlink Communications and Mediacom Communications Corp. Or it could pursue third-ranked US MSO Cox Communications Inc. or even next-door neighbor Cablevision Systems Corp. (NYSE: CVC), the fifth-largest US MSO, in the New York metro area. The mind boggles at all the possibilities.


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Time Warner Cable CEO Rob Marcus appeared to be alluding to these possibilities and maybe more last Friday in an interview with the Wall Street Journal. Without revealing his cards, the emboldened Marcus insisted that his rebounding company now has the flexibility to make whatever moves might be necessary for its future.

"What I've said repeatedly is that we are in the business of maximizing shareholder value, and we fully intend to fulfill that obligation," Marcus told the Journal. "That could be achieved by running the business on a standalone basis, allocating capital smartly, managing our balance sheet or engaging in M&A as an acquirer or as a seller."

Strange as it may seem, Time Warner Cable could even make a run at buying Charter now. After all, TWC is nearly three times bigger than Charter with close to 11 million video subscribers. While such an effort would likely be doomed to failure given Charter's tight ownership structure, it's not totally out of the question either.

What does seem out of the question right now is a new move by Comcast to take over another US cable operator, or another service provider of any kind for that matter. Given the stiff resistance of the US Justice Department and the Federal Communications Commission (FCC) to Comcast's ambitions for TWC, it seems pretty unlikely that federal regulators would allow the nation's biggest MSO to get much bigger through any kind of meaningful acquisition. So Comcast may have to sit on the M&A sidelines for a while, at least until the White House changes hands in two years.

In any case, Charter's totally unsurprising interest in bidding for Time Warner Cable again could lead to some very surprising changes in the US cable landscape over the next few months. That should all make for some very interesting discussions in the halls at next week's INTX (formerly Cable) Show in Chicago next week. Better stay tuned.

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

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DHagar
DHagar
4/30/2015 | 1:07:38 PM
Re: Stronger
Mitch Wagner, and the stock market seems to agree as well.  And, as Alan points out, TWC is in a strong position with more options.  So you are right, the system is working.
Mitch Wagner
Mitch Wagner
4/29/2015 | 2:27:33 PM
Stronger
The industry will be stronger for not having the level of consolidation that would have resulted from the Comcast/TWC merger. 
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