Longtime TWC Backer Sheds Part of Stake in Cable Firm

Capital Research Now Its 10th-Place Holder
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While speculation continues to swirl around Time Warner Cable regarding possible combinations with Charter Communications and other MSOs to create a rival to Comcast, one of the oldest backers of the second-largest U.S. cable operator has quietly slipped from the ranks of its largest shareholders.

Capital Research Global Investors, the Los Angeles-based mutual fund created by retired media investment legend Gordon Crawford, has drastically reduced its stake in TWC in the past four months, shedding about 13.6 million shares between March 31 and July 31, according to documents filed with the Securities and Exchange Commission on Aug. 9.

Crawford retired at the end of 2012. The fund and its sister, Capital Guardian Trust, have been run by a committee of managers since then.

WAS BIGGEST FUND HOLDER

According to the Aug. 9 13G filing — made by holders of 5% or more of a public company’s outstanding shares — Capital Research Global said it owned about 5.1 million shares of Time Warner Cable stock, or about 1.7% of its total outstanding shares, as of July 31. That’s down from the 18.7 million (6.6%) the fund owned on March 31, which at the time made it the largest institutional holder of Time Warner Cable stock.

With the recent sale of shares, Capital Research Global slips to 10th place among TWC’s institutional shareholders, and San Francisco-based fund Dodge & Cox, with 16.4 million shares, or about 5.7% of TWC’s outstanding stock, rises to No. 1.

Capital Research Global Investors is part of the Capital Group, one of the largest investment organizations in the world, with assets of about $1 trillion under management. Included under the Capital Group umbrella are the American Funds — one of the largest mutual funds in the country — and media funds Capital Research Global and Capital World Investments.

A spokesman for Capital Research Global declined to comment on the sales, citing the company’s policy of never commenting on its portfolio moves. But the sale seems to be part of a systematic reduction of the fund’s Time Warner Cable stake.

According to SEC documents, Capital Research has been reducing its holdings in TWC since March 2012, when it held about 33.7 million shares. According to Capital Research Global’s quarterly reports, the fund reduced its TWC holdings to 30.3 million shares on June 30, 2012; to 21.6 million by Sept. 30, 2012; and to 20.6 million by Dec. 31, 2012.

The latest share reduction is Cap Global’s biggest sale to date and comes at a time when Time Warner Cable shares have been rising steadily on deal speculation.

Since reports first surfaced of Charter’s interest in TWC — officials at one of its largest shareholders, Liberty Media, reportedly approached Time Warner Cable chairman and CEO Glenn Britt about a possible combination in June — shares in the MSO have risen about 20%. The stock closed at $113.80 each on Aug. 13.

There could be several reasons behind Cap Global’s TWC moves over the past several months, according to analysts.

The most obvious is simple profit-taking: TWC stock has risen 20% in the past three months and has underperformed other MSOs, so the fund could be cashing in TWC shares and putting the money into other cable stocks.

So far, though, the TWC moves haven’t led to a major purchase of another MSO’s shares. Cap Global owned about 80 million Comcast class-A common shares and 22 million Comcast class-A special common shares as of March 31, according to SEC filings.

MIXED OUTLOOK ON TWC

Still most analysts see additional runway ahead for the stock price. Last week ISI Group media analysts Vijay Jayant and David Joyce updated their outlook on their entire coverage universe, reiterating their $130 price target and “buy” rating on Time Warner Cable.

“It’s a big move, but you can’t fault a fund for taking profits; that’s what they are trying to do for their investors,” Joyce said in an interview about Capital Global’s recent actions. Other analysts concurred.

“TWC has been a good stock but their results have materially underperformed their peers,” said one analyst who asked not to be named.

Crawford’s funds had been long time investors in Time Warner Cable and its predecessor, Time Warner Inc. — according to reports he helped pair up Time Warner and Turner Broadcasting in the 1990s. Another Capital Group fund, Capital World Investors, is still Time Warner Inc.’s largest individual shareholder, with 46.5 million shares, or 4.99% of its outstanding stock.

TAKEAWAY

A mutual fund that’s been one of Time Warner Cable’s longstanding backers is quietly shedding its stake in the No. 2 U.S. MSO.

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