On Feb. 4, executives of cable operators Comcast Corp. and Charter Communications Inc. (CHTR:US) gathered at the Manhattan offices of law firm Wachtell Lipton Rosen & Katz to discuss Charter’s bid to buy Time Warner Cable Inc. (TWC:US) It proved to be the final straw for Comcast and its chief executive officer, Brian Roberts.
Comcast had negotiated for weeks on a deal with Charter to acquire Time Warner Cable assets if it were successful in its purchase. Yet Comcast wasn’t happy with Charter’s handling of the proposed agreement, according to people familiar with the matter.
Both sides became increasingly frustrated as Comcast pushed for a sweeter deal. Soon, Comcast Chief Financial Officer Michael Angelakis abruptly ended the meeting.
“Good luck to you,” he said in sarcasm as he and his team walked out, according to one of the people.
About an hour after Angelakis left the meeting, Roberts called Time Warner Cable CEO Rob Marcus and proposed a deal to buy all of his company for about $150 a share -- without Charter’s participation. Marcus asked for $160, and discussions continued after Roberts flew to Sochi for the Winter Olympics, which are being broadcast on Comcast’s NBC Universal stations.
On Feb. 9 Roberts and Marcus settled on a $158.82 per share all-stock deal, or $45.2 billion, that will join the two biggest U.S. cable companies. Charter had offered $132.50 a share.
“They were blaming Time Warner for not being responsive and Time Warner was being very responsive,” John Paulson, a Time Warner Cable shareholder, said of Charter in an interview. “They were open to a deal. They weren’t shutting the door, they were just saying they needed fair value. It’s obvious now that they were light on what they were offering.”
The agreement caught Charter by surprise, people familiar with the matter said. Comcast put the deal together in just six days, rather than the weeks they typically take.
The quick turnaround kept the discussions a secret from Charter, although work on a solo bid had already been done by bankers and lawyers, two of the people said. Comcast understood Time Warner Cable’s operations in New York and its Los Angeles regional sports networks because it had researched them in preparation for a deal with Charter, according to one person familiar with the matter.
The switch in deals underscored that Marcus always preferred a transaction with Comcast, seeing it as a better fit, said one person.
Time Warner Cable didn’t like the debt the Charter deal would put on the combined companies and thought there were more cost savings with Comcast, two people said. Striking a deal with Comcast helps Time Warner Cable bondholders and shareholders, which was important to Marcus, said the people.
Marcus also has a longtime relationship with Roberts while barely knowing Liberty Media Corp. (LMCA:US) chairman John Malone, he said in an interview in December. Liberty owns about 27 percent of Charter.
Comcast and its advisers had also concluded late last year that it had a strong, winning case to make to regulators if they did merge with Time Warner Cable, said one of these people, giving Roberts even more confidence to go after Time Warner alone.
At the decisive meeting, Comcast pushed Charter to increase its $132.50 offer. Comcast also offered stock, not cash, for the divested assets, a currency Charter rejected because it would need to find a buyer for the block of shares and the transaction would be taxed, one of the people said. Further, because the deal was hostile, Comcast and Charter had to set a price on the assets without performing due diligence, another point of contention, the person said.
Comcast also wanted more say in an impending proxy battle, the people said. Comcast was hesitant to support a rival slate of directors because Roberts had a good relationship with Marcus.
The fight for Time Warner Cable goes back to June when Malone began courting the company. Liberty Media CEO Greg Maffei made the first overture by sitting down with Marcus and then-CEO Glenn Britt in New York to discuss the broad outlines of a possible deal, without mention of a specific price.
A series of phone conversations over the following months led to a second in-person meeting in October that included Charter CEO Thomas Rutledge. Rutledge, who had been working with Malone on strategies for an acquisition since the early part of last year, said he’d be willing to make an offer in the low $130’s per Time Warner Cable share.
The day after Christmas, Marcus, who was vacationing in the British Virgin Islands, called Rutledge at his home in Steamboat Springs, Colorado. The two had gone back and forth on Charter’s offer, and Marcus wanted to propose a deal structure that would ensure value to Time Warner Cable’s shareholders.
The next time the two talked to each other was almost two weeks later at the Consumer Electronics Show in Las Vegas, during the week of Jan. 6.
Within a scrum of executives touring the booths, Rutledge prompted Marcus about his offer. He said if Time Warner Cable didn’t want to engage in the deal, he would take it to shareholders. Marcus said he should.
The following week, exactly a minute before the New York Stock Exchange closed on Jan. 13, Rutledge called Marcus at his office to tell him he was about to publicly announce the offer. Rutledge said he would send him an e-mail. Before Marcus could read the note, he saw headlines from a Bloomberg News story announcing Charter’s bid for his company.
Time Warner rejected the $132.50 offer as too low. Meanwhile Charter and Comcast began talks on slicing off some Time Warner Cable assets. On Jan. 28 the two reached a tentative agreement for TWC to sell its New York, North Carolina and New England cables to Comcast.
Charter pushed for Comcast to sign an agreement, which Charter could have released publicly to show the market it was the only viable bidder, according to two people familiar with the matter. Comcast resisted, instead pushing Charter to change the terms.
The disagreements came to a breaking point at the law firm meeting Feb. 4.
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