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Time Warner Cable Investors Want at Least $140 in Deal: Real M&A
2014-01-15 00:08:46.812 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland and Tara Lachapelle
Jan. 15 (Bloomberg) -- 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 stockowners and analysts. Wells Fargo & Co. said
that Charter probably won’t offer more than $150 on its own,
although it could team up with Comcast Corp. to complete the
takeover. With Time Warner Cable’s 12 million video customers
and cable assets in cities from New York to Los Angeles up for
grabs, Macquarie Group Ltd. said it doesn’t rule out a bidding
war for the operator.
Charter’s offer “was definitely the first bid as part of a
negotiating strategy,” said Steven Soranno, a Bethesda,
Maryland-based 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.
Deal Talks
“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
yesterday to walk through its offer.
Marcus said this week that New York-based 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, Connecticut-based
Charter, declined to comment yesterday beyond what Rutledge has
already said about Charter’s bidding plan.
Nothing in Charter’s presentation “changes the fact that
its proposal is grossly inadequate,” Time Warner Cable said in
a statement yesterday. “We are confident in our standalone plan
and we are not going to let Charter steal the company.”
Floor Price
Macquarie surveyed about 50 Time Warner Cable shareholders
and found that almost two-thirds said the minimum price they
were willing to accept was $140 to $150 a share. Only 22 percent
required a bid higher than $150, Amy Yong, a New York-based
analyst at Macquarie, wrote in a Jan. 13 report.
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.”
Charter may have more room to negotiate with Time Warner
Cable shareholders than its management. JPMorgan Chase & Co.
estimates many investors would sell at about $140 to $145 a
share.
“Getting a deal done in the face of initial management
objection still has a decent chance of success,” Philip Cusick,
an analyst for the New York-based bank, wrote in a Jan. 13 note.
Long Process
Holding out for the chance to get $160 apiece may not be
worth the wait, according to Peter Zeuli, chief investment
officer of Voorhees, New Jersey-based Philadelphia Investment
Partners LLC. Zeuli said his firm sold its Time Warner Cable
shares and instead bought options on the stock because he
doesn’t think a transaction is likely to close until later in
the year.
If Charter and Time Warner Cable can get the deal done
quickly, $145 to $150 would be enough, he said.
“This is going to be long and drawn out,” Zeuli said in a
phone interview. “If investors take a common sense view of
things, just get it done now at a lower valuation and then take
your money and go somewhere else.”
Time Warner Cable shares closed yesterday at $136.
Joint Bid?
Charter and Malone may not be inclined to raise their bid
much higher, particularly given some of Time Warner Cable’s
recent setbacks and the pressure it’s facing from streaming
services such as Netflix Inc., said Matthew Harrigan, a Denver-
based analyst at Wunderlich Securities Inc.
Time Warner Cable lost 215,000 video subscribers in the
fourth quarter, bringing its customer losses for 2013 to about
825,000.
Charter probably won’t offer more than $150 a share as a
stand-alone bidder, although Time Warner Cable could be sold in
pieces potentially as part of a joint Comcast-Charter offer,
Marci Ryvicker, a New York-based analyst at Wells Fargo, wrote
in a Jan. 14 report. Comcast is considering a bid, either on its
own or with Charter, people with knowledge of the matter have
said.
John Demming, a spokesman for Philadelphia-based Comcast,
didn’t respond to a request for comment.
Charter, which emerged from bankruptcy in 2009, has just
$41 million of cash and a market value of $14.3 billion,
according to data compiled by Bloomberg. Comcast is almost 10
times the size and has $1.6 billion of cash, the data show.
Deal Details
Investors will weigh the mix of stock and cash that makes
up any boosted bid in addition to the price, said Soranno of
Calvert Investments. The fewer the synergies, “the more we
would be looking for a cash composition,” Soranno said. He
declined to specify what he would consider an appropriate cash
amount.
There should be a price between Charter’s $132.50 bid and
Time Warner Cable’s $160 counter that can get a deal done, said
Peter Drippe, a New York-based fund manager who helps run an
event-driven fund at Visium Asset Management LP, which oversees
about $5.5 billion including Time Warner Cable shares.
Charter’s offer is “a placeholder to start negotiations so
they can finally get them to the table and have a real
conversation about value,” Drippe said in a phone interview.
“I think $150 is a fair price and I would certainly think that
would be acceptable to most people.”
For Related News and Information:
Time Warner Cable Rejects Charter’s $61 Billion Takeover Bid
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Time Warner Cable Loses 215,000 TV Customers in Fourth Quarter
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Billionaire Malone Returns to Empire Building Amid Cord Cutting
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Time Warner Cable deal news: TWC US <Equity> TCNI MNA <GO>
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Top deal news: DTOP <GO>
--With assistance from Alex Sherman in New York. Editors: Beth
Williams, Sarah Rabil
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editor responsible for this story:
Sarah Rabil at +1-212-617-5992 or
srabil@bloomberg.net