Charter, TWC Up Sharply on Consolidation Speculation

CNBC Report Says Liberty Approached TWC About Merger of Equals

Shares of Charter Communications and Time Warner Cable were up sharply in early trading Friday, after a CNBC report said that Liberty Media, which owns a 27% interest in Charter, recently approached TWC executives about a merger of equals.

According to a Friday report by CNBC’s David Faber, Liberty CEO Greg Maffei recently discussed general consolidation issues with TWC chairman and CEO Glenn Britt. Faber added that Liberty and Charter are “aggressively reviewing potential acquisition targets,” and that Liberty had approached TWC about a potential merger of equals with Charter, but the much larger TWC wasn’t interested.

Speculation about Charter’s M&A appetite has been heavy ever since Liberty agreed to invest $2.6 billion in the company in May. Maffei has said publicly that Charter could be used as a vehicle to consolidate cable operators,  but did not elaborate. And Bloomberg News reported June 10 that Liberty has its eye on Time Warner Cable.

While several cable financial executives agreed that Time Warner Cable may be at the top of Liberty chairman John Malone’s wish list, they believe smaller, regional operators like Cox Communications, Mediacom Communications, Suddenlink Communications and others are more realistic targets for Charter.   

And though no deals appear on the horizon – and Faber, citing sources close to Time Warner Cable, said the MSO has no interest in any linkup with Charter – it didn’t stop investors from snapping up shares in both companies.  

Time Warner Cable stock reached a new 52-week high Friday, rising 8.3% ($7.98) earlier in the day to $104.13 per share, before settling back slightly to close at $103.93 each (up 8.1% or $7.78 each).  Charter shares also broke through their 52-week barrier, setting a new mark of $117.09 (up 5.6% or $6.20 each) earlier in the day. Charter stock closed June 14 at $116.61, up 5.2%, or $5.72 per share.

Faber said that although TWC rejected the notion of a Charter combination – he added they felt Charter was trying to use the bigger TWC’s balance sheet and its own high-multiple shares for a deal that didn’t make financial sense – the nation’s second largest MSO has hired investment banker Morgan Stanley and an outside public relations firm in case it needs to “defend against a more public onslaught.”

Time Warner Cable and Charter declined to comment on the Faber report