Cable Operators

Charter Sees TWC Merger Creating $30B Cable Behemoth

Says Applying Its Strategy Could Turn Around Faltering MSO 1/14/2014 1:52 PM Eastern

Charter Communications estimates a merger with Time Warner Cable will create a 15.6-million subscriber cable powerhouse with $30 billion in annual revenue and cash flow of $10.9 billion, according to documents filed with the Securities and Exchange Commission Tuesday.

Charter made a $132.50 per share ($61.3 billion) offer for Time Warner Cable on Monday, a bid that the second largest MSO rejected, calling it “grossly inadequate.”  However, TWC did say that although it was not for sale, it would accept an offer for the entire company for $160 per share, or about $72 billion.

Charter plans to hold a conference call to discuss the matter today at 4:30 p.m. Prior to the call the company released its presentation documents in an SEC filing.

Charter plans to use its tried and true operating strategy --- boosting video offerings, high-speed data speeds and converting its plant to all-digital – to help accelerate TWC’s operating growth. Although nearly three times larger than Charter, TWC has faltered in the past few quarters, losing 304,000 video customers in the third quarter and announcing earlier this month that fourth quarter loses will reach 215,000 video customers.

Earlier in the day Charter CEO Tom Rutledge told CNBC that he believed Charter’s bid for TWC was fair.

"[TWC shareholders] are going to participate in a turnaround situation that improves the operation of the company, stops the subscriber loss, improves customer services and creates more value than they would get with a pure cash offer," Rutledge said on CNBC's "Squawk on the Street." "In the last two years [TWC has] lost an equivalent of a Los Angeles in subscriber losses. So there's a big job to be done in turnaround."

In its presentation, Charter added that greater scale – the combined company would have 15.6 million video customers, 15.3 million high-speed data subscribers and 7 million phone customers – will help drive sales, increase branding power, drive product innovation and development, as well as provide a greater opportunity to serve large commercial customers.

And Charter says its record proves the strategy works. Since Q3 2012, quarterly residential revenue growth rose from 1.3% to 5.3% in Q3 2013.

In the presentation, Charter estimated that TWC would grow residential revenue growth by 1.6% in 2016 using the Charter strategy, “despite significant recent losses and [a] negative outlook for 2014.”

The company also answered TWC’s contention that its $132.50 per share offer was too low, citing analysts’ reports that stated Time Warner Cable stock could fall to between $95 and $108 per share without a transaction.

“TWC’s share price would be meaningfully lower absent Charter interest,” the company said.

Charter added that while it wants to reopen the lines of communication with Time Warner Cable, it won’t pay too high a price, nor will it wait too long.

“[The] combination makes sense for both companies, but Charter’s willingness to pay is limited to a realistic premium due to Charter’s faster growth profile on a stand alone basis,” the company stated in the presentation.   

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