Can Charter Sway Investors To Wipe Slate Clean at TWC?

Feb. 15 Is Deadline for Proposing New Directors
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Do Time Warner Cable shareholders trust their board of directors?

If they do, then come this Saturday (Feb. 15), they may have a tough decision to make. That’s the deadline for new proposals to be made at the company’s upcoming May annual meeting of shareholders. All 13 of TWC’s board members are up for re-election in May.

At press time last Friday, speculation swirled — and was likely to continue this week — that Charter Communications was readying a full slate of directors to replace TWC’s existing board, in yet another move to force the New York-based cable giant to the negotiating table.

Candidates have yet to be determined, and Charter and Time Warner Cable each declined to comment. But sources in the cable financial community said the insurgent slate would at least include Liberty Media chairman John Malone and CEO Greg Maffei. Liberty owns a 27% interest in Charter.

The rest of the new slate would have to include members with a strong track record of independence to add credibility to any deal, the sources added.

Charter launched its unsolicited $132.50-per-share bid for TWC on Jan. 13, which the larger company promptly rejected as too low. Time Warner Cable countered with a $160-per-share valuation of the company, including $100 per share in cash, $60 in Charter stock and a 20% symmetrical collar to protect both sides in the wake of a drop in either’s share price.

Charter has been expected to present a new slate of directors that would be more open to a deal. On the surface, the move seems risky — it would seem easier for Charter to sway TWC’s shareholders than to replace a few board members. But replacing the entire board of directors sends the message that Charter believes the current board’s valuation methodology is flawed.

In a blog post last week on The New York Times website, Steven Davidoff, a professor at Ohio State University’s Michael E. Moritz College of Law, said Charter’s strategy is all about convincing investors that the $160 share price is unreasonable, attempting to push the claim “that the old analysis is flawed, allowing the new directors to accept a lower price if they so choose.”

Time Warner Cable chairman and CEO Rob Marcus has said in the past that any new directors proposed by Charter would be held to the same fiduciary responsibility as the company’s current directors. He has often cited the so-called “Airgas defense,” named for the 2010 hostile takeover attempt of Airgas by rival Air Products.

When Airgas rebuffed the takeover offer as too low, Air Products took it to court, seeking to force the board to accept the offer. The court upheld the Airgas board’s rejection of the offer, and Air Products dropped its bid.

TAKEAWAY

In another move to push Time Warner Cable to the negotiating table, Charter Communications appears to be recruiting a full slate of directors to replace the takeover target’s existing board.

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