Bloomberg News

Time Warner Cable Sees Growth as CEO Fends Off Charter Bid (1)

January 30, 2014

Time Warner Cable Inc. (TWC:US) beat fourth-quarter profit estimates and forecast subscriber growth, bolstering Chief Executive Officer Rob Marcus’s case against a $37.4 billion takeover bid from Charter Communications Inc.

Excluding one-time costs, earnings were $1.82 a share, the company said today in a statement. Analysts had estimated $1.73 on average, according to data compiled by Bloomberg. New York-based Time Warner Cable is pushing to add 1 million residential customers in the next three years, Marcus said today.

The CEO presided over a 91-minute conference call with analysts -- about half an hour more than normal -- to discuss quarterly results, laying out his plan to lure more customers with faster Internet speeds and better TV technology. He repeatedly talked about the company’s ability to return value to shareholders as opposed to Charter’s “too-low” offer.

“I am honored and thrilled to lead this great company, and I couldn’t be more enthusiastic about our future,” he said. “We’re geared up to manage this company for the long haul.”

Charter, the fourth-largest competitor in the cable industry, has said a merger with second-ranked Time Warner Cable would cut expenses such as programming and technology as the industry adjusts to shrinking demand for cable TV.

Time Warner Cable lost 217,000 residential video subscribers in the fourth quarter, hurt by competition from AT&T Inc., Verizon Communications Inc. and streaming services such as Netflix Inc. To boost sales, the company is charging subscribers more: Their average monthly bill climbed 2.2 percent to $106.03 last quarter.

Looming Bid

Charter’s bid loomed over Time Warner Cable throughout the fourth quarter. The Stamford, Connecticut-based carrier approached Time Warner Cable in October and December to propose a friendly takeover, then went public with an acquisition offer earlier this month.

Time Warner Cable’s Marcus rejected Charter’s buyout bid of $132.50 a share and said he’s open to a deal for $160 a share, or $100 in cash and $60 in Charter stock.

Shares of Time Warner Cable gained 1.6 percent to $134.20 at the close in New York. On average, the company’s stock has traded at $134.21 since Charter publicly announced its offer on Jan. 13, indicating investors expect a higher bid.

While Marcus acknowledged that mergers could produce benefits, Charter isn’t a good fit, he said in an interview on Bloomberg Television.

‘Not Interested’

“Charter has been on and off the block for most of the last several years,” he said. “We’ve had an opportunity to look at it and, it’s not a company that has particularly interested us.”

For its part, Time Warner Cable said it will use new technology and a more user-friendly interface to help win back customers in 2014. The company announced a plan today to begin increasing Internet speeds and add video-recording features in New York and Los Angeles this year.

Sales will grow 4 percent to 5 percent in 2014, the company said, above the 3 percent average estimate of analysts compiled by Bloomberg. Time Warner Cable also raised its quarterly dividend 15 percent to 75 cents a share.

While it has lost TV customers, Time Warner Cable has continued to add broadband Internet subscribers, gaining about 56,000 in the fourth quarter. Still, its performance contrasts with market leader Comcast Corp. (CMCSA:US), which added 43,000 television customers in the same period.

CBS Blackout

For the year, Time Warner Cable shed about 825,000 TV users, or 6.8 percent of its customer base. That compares with a 1.4 percent decline for Philadelphia-based Comcast in 2013. The latest quarter was a modest improvement on the previous three months, when a fee dispute with network CBS Corp. led to a monthlong blackout, contributing to the departure of 306,000 customers in the period.

Time Warner Cable’s fourth-quarter net income rose 5.3 percent to $540 million, or $1.89 a share, from $513 million, or $1.68, a year earlier.

Charter’s offer has pitted Marcus against Charter CEO Tom Rutledge, an industry veteran and a former executive at Time Warner Cable itself. As Marcus calls for a higher bid, Rutledge is reaching out directly to Time Warner Cable investors to win support for his acquisition strategy.

Shareholders could be satisfied with an offer between $140 and $150 a share, according to a recent Bloomberg survey of investors and analysts.

Foregone Conclusion?

“The market believes this is going to lead to a deal,” Craig Moffett, an analyst at MoffettNathanson LLC, said in an interview earlier this month. “But it’s not a foregone conclusion that this ever reaches a successful consummation.”

Comcast has taken itself out of the running for a solo bid or a joint offer and has instead agreed to buy some of Time Warner Cable’s markets, including New York City, New England and Charlotte, North Carolina, should Charter successfully complete a deal, people with knowledge of the matter said this week. An agreement would give Comcast an additional 3 million customers and could be valued at about $16 billion.

John Malone, chairman of Liberty Media Corp., could also step in to help sweeten the bid. He owns 27 percent of Charter through Liberty Media (LMCA:US), which has said it would want to own a similar stake in the combined company.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net


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Companies Mentioned

  • TWC
    (Time Warner Cable Inc)
    • $150.07 USD
    • 0.76
    • 0.51%
  • CMCSA
    (Comcast Corp)
    • $57.22 USD
    • 0.05
    • 0.09%
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