Cable M&A

Time Warner Cable Is on the Block—What Might It Fetch?


Now we know Time Warner Cable (TWC) is officially for sale: It’s time to haggle over the price. After months of private talks failed to yield a merger deal, Charter Communications (CHTR) went public on Monday with its bid to buy the cable company for about $61 billion, including debt.

Time Warner’s board called the offer of $83 in cash and $49.50 in Charter stock “grossly inadequate” and said it had made clear that it wants $160 per share. Were the companies to strike a deal, the combination would create the second-largest U.S. cable operator, after Comcast (CMCSA), with about 20 million customers in 38 states. Any transaction would also include nearly $24 billion in Time Warner Cable debt. Charter has about 4.3 million customers, making it the field’s No. 4 player, though the one most eager to kick off the industry’s consolidation.

“We gave Charter our bottom line, but rather than pursuing this path, Charter has chosen to go public with its third low-ball offer trying to pressure TWC’s Board into selling the company at a grossly inadequate price,” Chief Executive Officer Rob Marcus said in a statement. In a Jan. 13 interview with Bloomberg News, Charter CEO Tom Rutledge called the $160 counter “not a serious offer” by Time Warner Cable. “They knew the price they were offering was designed to not appeal,” he said.

As a result, Charter has decided to take the case to Time Warner Cable’s shareholders and may nominate new directors for Time Warner Cable’s board. Media reports have also said that Comcast is analyzing a bid, too, either solo or with Charter.

Both companies have adopted classic negotiating posture, with Time Warner highlighting its strength as the only “pure play” cable operator of scale—given Comcast’s various business divisions—and TWC’s dominant position in some of the largest U.S. markets, including New York, Los Angeles, and Dallas. Charter, meanwhile, used the Bloomberg interview to talk down its target’s value, noting Time Warner Cable’s heavy customer losses last summer amid a protracted fee fight with CBS (CBS) and its relatively lackluster customer service record. Still, it’s worth noting that the Charter offers keep rising: from $114 to $127 to $132.50, according to Time Warner Cable. This suggests a highly motivated buyer.

TWC shares closed Monday at 132.40, having gained 35 percent over the past 12 months on investors’ speculation that the company would be an early player in cable industry consolidation. Charter shares have soared 70 percent in that period.

In past comments about cable consolidation, Marcus, who took over as TWC’s CEO on Jan. 1, has said he will consider offers that create value for the company and its shareholders. He has also highlighted his prior work as a corporate attorney with experience in mergers and acquisitions. “Whether or not Time Warner Cable will participate in M&A is and always has been, whether it’s as a buyer or a seller, 100 percent driven by what’s in the best interest of our shareholders,” Marcus said at a December investor conference.

Charter says its bid can help the companies gain leverage when negotiating fees with entertainment companies such as Viacom (VIA) and Walt Disney’s (DIS) ESPN. The CBS-Time Warner Cable conflict led to disastrous financial results for the cable company and suggested that, at least for now, content creators have the upper hand.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • TWC
    (Time Warner Cable Inc)
    • $152.83 USD
    • 1.68
    • 1.1%
  • CHTR
    (Charter Communications Inc)
    • $168.17 USD
    • 0.71
    • 0.42%
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