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Charter Takes Message To TWC Shareholders

Charter Communications broke its silence in the wake of Comcast and Time Warner Cable’s Feb. 13 merger announcement, urging TWC shareholders on March 28 to reject the deal.

While Charter seems geared for a fight when TWC shareholders gather to vote on the merger — a meeting date that has not yet been set — Charter’s chances of besting the Comcast offer appear to be slim.

In a proxy statement filed on March 28, Charter makes several claims in an attempt to back up its argument that the Comcast deal is inferior to the one it made for TWC in January for $132.50 per share.

Working in Charter’s favor is the drop in Comcast’s stock since the deal was announced. Comcast has proposed exchanging 2.875 shares of Comcast for every share of TWC, valuing TWC at $158.82 per share. That ratio was based on Comcast’s stock being priced at $55.24 per share (its price on Feb. 12, the day before the announcement).

Since then, Comcast has dipped 11% (or $6.14) to $49.10 on March 27. At the 2.875 exchange ratio, that values TWC at $141.16 per share, closer to the $132.50 Charter offered on Jan. 13.

Ironically, the Charter proxy lifted Comcast shares about 1% to $49.56 on March 28. TWC stock was up another 1%, and Charter shares also rose 1% last Friday.

According to MoffettNathanson principal and senior analyst Craig Moffett, Comcast stock would have to drop below $46 per share to make the Charter deal more attractive, meaning shares of the largest cable operator in the country would have to drop another 6.3%.

At that level, the Comcast all-stock deal would be equal to Charter’s $132.50 valuation, but the Charter offer would include cash (about $83 per share), would close more quickly and have a presumably faster path to regulatory approval.

All that also assumes Comcast would not make any moves to improve its bid, by raising the exchange ratio or adding cash to its offer.

“I think he [Malone] waits them out,” Moffett said in an e-mail message. “If Comcast wants to add a little cash, they can easily (and their shareholders would love to see anything that adds leverage), and if Charter raises their bid Comcast would just raise theirs a little in response. I have a hard time seeing a path to Charter trumping Comcast.”

Time Warner Cable said in a statement it is “fully committed to our merger with Comcast, which we believe is in the best interests of shareholders.”