Yesterday, the backers of Charter Communications made a $37.3 billion offer to purchase Time Warner Cable. It was Charter’s third cash offer to TWC and it was quickly rejected by the larger cable company’s board as “grossly inadequate.” But that doesn’t mean this is the end of the road for Charter’s bid to merge with TWC.
John Malone, CEO of Liberty Media, which owns 27% of Charter and about 1% of Time Warner Cable, has been pushing for the acquisition and for the need for new leadership at TWC since at least the middle of 2013. Since then, Charter has made three offers to TWC, all of which have been ignored or rejected by the board.
The latest offer of $37.3 billion plus another $25 billion in debt, would have left current TWC shareholders with 45% ownership in the merged entity. It would have paid $132.50 per share, only $.10/share above Monday’s closing price for TWC stock.
“In essence, these guys are just trying to get a premium asset at a bargain basement price,” explained recently installed TWC CEO Rob Marcus about the Charter offer. “This makes the job of fending it off rather straightforward. Our shareholders will see it as what it is, an attempt to steal the company.”
Marcus said the board responded to Charter by saying it might be open to selling the company at $160/share, a substantial increase over this most recent offer.
Charter CEO Tom Rutledge, who previously spent more than two decades working for TWC, was not thrilled with that number.
“[Time Warner Cable] came back to us with a design to be dismissive. They have not engaged with us,” said Rutledge. “All of the conversations have been one way.”
Since Charter and the TWC board are so far apart — and don’t really seem intent on compromise — Charter says it will take the matter to TWC investors and let them decide whether the offer is sound and if Charter’s leadership would do a better job running the company than the current TWC power structure.
“The purpose of going to the public is to talk to Time Warner shareholders and to ask them to consider how valuable this deal is and to ask management and the board to engage,” explains Rutledge.
The timing of the latest offer appears to be calculated to come shortly before TWC investors will have the ability to name new members to the cable company’s board. Charter admits it is considering the idea of asking shareholders to vote in new TWC directors who would be more amenable to Charter’s offer.
But TWC’s Chief Financial Officer says that any board member who signs off on Charter’s asking price would be failing to do his/her fiduciary duty.
Even though TWC is one of the largest cable company in the U.S., it has been hemorrhaging customers at a high rate, losing 300,000 customers alone in the wake of its prolonged blackout of CBS in three major markets; a blackout that did nothing to lower the cost that customers will pay for watching CBS programming on Time Warner Cable.
Meanwhile, it has a notoriously bad customer service reputation, recently scoring dead last in the American Customer Satisfaction Index for cable TV providers and next-to-last (by a single point) for Internet service providers.
Comcast has been a rumored suitor of TWC, but it’s highly unlikely that federal cable and antitrust regulators would allow such a massive merger to occur.