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Time Warner Cable investors probably want $140 a share in deal

By Brooke Sutherland and Tara Lachapelle
Bloomberg News

Time Warner Cable Inc.’s management wants Charter Communications Inc. to tack on almost $8 billion to its takeover bid. Shareholders may accept a smaller bump.

Time Warner Cable this week spurned Charter’s offer of $132.50 a share in cash and stock, or about $37 billion, saying it would be open to a deal at $160 a share instead.

The cable provider’s shares then surged as high as $137.20, indicating investors expect a better price — either from Charter, which is backed by billionaire John Malone, or another bidder.

After Time Warner Cable gained almost 40 percent in the past year, shareholders may be satisfied with an offer of $140 to $150 a share, according to price estimates compiled by Bloomberg from stock owners and analysts.

Wells Fargo & Co. said that Charter probably won’t offer more than $150 on its own, although it could team up with industry giant Comcast Corp. to complete the takeover.

With Time Warner Cable’s 12 million video customers and cable assets in cities from New York to Akron to Los Angeles up for grabs, Macquarie Group Ltd. said it doesn’t rule out a bidding war.

Charter’s offer “was definitely the first bid as part of a negotiating strategy,” said Steven Soranno, a Bethesda, Md., analyst at Calvert Investments Inc., which oversees more than $12 billion including Time Warner Cable shares. “I think $145 would be a serious number.”

Charter’s proposal includes about $83 of cash per share and about $49.50 in stock to create a combined company that would be the third-largest pay-TV operator by customers, behind Comcast and DirecTV.

Time Warner Cable’s unit based in Akron is its third largest serving customers in Northeast Ohio and Western Pennsylvania.

“Our objective was to talk to management and try to get them engaged,” Charter Chief Executive Officer Tom Rutledge said in an interview on Jan. 13. “They have not, so we’re going to make our case to shareholders about why this deal is good for them and hope they ask management and the board to watch out for the interests of shareholders.”

Charter sent a letter to Time Warner Cable CEO Rob Marcus this week explaining why the company’s offer is beneficial for investors, and held a conference call and gave a presentation on its offer.

Marcus said this week that Time Warner Cable is open to a deal with Charter for $160 a share, consisting of $100 in cash and $60 in Charter common stock.

Justin Venech, a spokesman for Stamford, Conn.-based Charter, declined to comment beyond what Rutledge said.

Nothing in Charter’s presentation “changes the fact that its proposal is grossly inadequate,” Time Warner Cable said in a news release. “We are confident in our stand-alone plan and we are not going to let Charter steal the company.”

Charter executives plan to begin meeting with Time Warner Cable shareholders to convince them to support their offer.

Charter’s offer price is “more of a floor than a ceiling,” said Chris Marangi, a money manager at Gamco Investors Inc., which oversees $43.5 billion including Time Warner Cable shares. “That said, the players involved are very disciplined. Charter might be willing to raise its initial offer, but it’s hard to see it getting much above $150.”

Peter Zeuli, chief investment officer of Voorhees, N.J.-based Philadelphia Investment Partners LLC, said, “This is going to be long and drawn out.”

Time Warner Cable lost 215,000 video subscribers in the fourth quarter, bringing its customer losses for 2013 to about 825,000.


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