After seven months, Charter Communications has finally made public its intentions to acquire Time Warner Cable, lobbing a preliminary bid valuing the second-largest U.S. cable operator at $132.50 per share, or $61.3 billion in cash, stock and assumed debt.
But amid the increasingly tenacious negotiating — Time Warner Cable called Charter’s offer “grossly inadequate;” Charter said TWC had a “failed operational strategy” — the back-and-forth between the two has always centered on the stock.
Time Warner Cable chairman and CEO Rob Marcus, in rejecting the Charter offer, drew a line in the sand, declaring the New York-based MSO would accept a deal no less than $160 per share, $28 per share ($8 billion) more than Charter’s offer.
Since Charter first leaked its desire to consolidate the cable business in June, TWC has soared about 40%, aided by strong growth in the category. And the stock has risen and fallen as news surrounding a possible deal continued to swirl. Talk that another operator, such as Comcast or Cox Communications, could join the bidding spiked shares in November, as did TWC’s poor third-quarter results in October and August-long retransmission-consent fight with CBS.
In its Jan. 13 announcement, Charter said it had made three earlier offers for TWC — for $114 and $127 per share — and received little feedback. After months of being ignored, the Stamford, Conn.-based MSO said it was forced to take its case straight to shareholders, hoping they will put enough pressure on management to force them to the table. That could include assembling shareholder groups to put forth a new slate of directors open to a deal at TWC’s annual meeting in the next few months — the deadline for new shareholder proposals is in mid-February.
No matter that outcome, Time Warner Cable is in play. And in rejecting the Charter offer, TWC set a base on future bids of $160 per share, something that could attract new players or keep them at bay with an unrealistic valuation.
A relevant question for shareholders: Is Time Warner Cable actually worth $160? Charter says no (it lost 800,000 video customers in 2013 and has inferior plant); TWC says yes (it is turning the corner with new products and services and its $160-per-share valuation works out to be about 8 times cash flow, comparable to other deals).
Analysts believe TWC’s worth may lie somewhere in the middle — ISI Group media analysts Vijay Jayant and David Joyce and Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak believe $145 per share could do the trick.
The next few weeks may clear the path to an answer.
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