John Paulson, the hedge-fund manager who profited last year with bets on merging companies, stands to gain $141 million on Time Warner Cable Inc. (TWC:US) shares from yesterday’s price after Comcast Corp. (CMCSA:US) agreed to acquire it.
Paulson & Co. owned 6 million shares in Time Warner at the end of last quarter, valued at $812 million as of yesterday. The New York hedge-fund firm would receive 17.25 million Comcast shares under the terms of the deal, valued at $953 million based on the closing share price.
The surprise deal for $45.2 billion in stock that combines the two largest U.S. cable companies and creates a bulwark against competition from phone and satellite providers is the “ideal merger,” Paulson said today in a telephone interview. In sealing the deal, Comcast Chief Executive Officer Brian Roberts trumped a bid from Stamford, Connecticut-based Charter Communications Inc. and its billionaire backer John Malone, who had courted Time Warner Cable for months.
“Comcast is the best possible buyer (CMCSA:US) for Time Warner,” said Paulson, a billionaire who was one of 2013’s top-performing hedge-fund managers. “Charter was really always too small to buy Time Warner or too small to offer fair value.”
Holding out for a better offer than Charter’s $132.50-a-share bid allowed New York-based Time Warner Cable to deliver an almost 70 percent gain for shareholders since the end of May.
Paulson & Co., based in New York with $21 billion in assets, added 2 million shares (TWC:US) of Time Warner Cable in the fourth quarter, bringing the firm’s position to 6 million shares, Paulson said. The Comcast purchase values each Time Warner Cable share at $158.82, or 17 percent more than its closing price yesterday. The transaction, subject to approval by stockholders and regulators, is expected to be completed by the end of 2014.
Time Warner Cable surged 6.8 percent today to $144.56 at 3:38 p.m. in New York. Paulson’s total gain on the investment is probably larger than $141 million because the firm first acquired the stock during the third quarter, when it traded at an average of $112.45 a share.
Cablevision Systems Corp. (CVC:US), which is based in Bethpage, New York, may be a target for Charter as it continues to pursue possible acquisitions, Paulson said.
“Charter is very open on its goal to consolidate and Time Warner is no longer an option for them but there’s other smaller systems that would fit well with Charter,” Paulson said. “The only remaining public one would be Cablevision, which is still independent but it’s the largest independent public company.”
Paulson, 58, is best known for making $15 billion in 2007 betting against subprime mortgages. His main strategies rebounded last year with prescient bets on companies in takeovers, a strategy known as merger-arbitrage, where he got his start as a trader, and by investing in stocks that surged as global central bank policies propped up markets.
At Franklin Mutual Advisers LLC, which owned 4.6 million Time Warner Cable shares as of Sept. 30, Chief Executive Officer Peter Langerman called the Time Warner Cable transaction “a very sensible deal.” Langerman’s unit is part of San Mateo, California-based mutual fund company Franklin Resources Inc., which owned a total of 8.9 million shares.
“This is the best partnership of the possibilities out there,” Langerman said. “It is a strategically sound and financially sound combination.”
Langerman’s firm has been a holder of Time Warner Cable shares since the business was spun off from Time Warner Inc. in March of 2009.
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