Still Awaiting Signs Of a ‘Bear Hug’


Investors may have to wait a little longer for the biggest shoe in cable to drop — Charter’s expected “bear- hug” offer for Time Warner Cable — as the participants appear to be at odds regarding the respective synergies inherent in the deal.

Charter was expected to issue a formal offer letter to Time Warner Cable last week, ending what has been about six months of speculation about whether the two cable giants could get a deal done. But as of last Friday afternoon (Dec. 20), no letter was forthcoming, and reports indicated that none would come until after the New Year’s holiday, as the two sides continue to work out their differences.

Charter first began making overtures to TWC in June, after one of Charter’s largest shareholders — cable legend John Malone’s Liberty Media — broached the subject of a merger with TWC management. Time Warner Cable rebuffed that offer, but investors hungry for a major cable deal pumped the stock up by more than 30% in anticipation of a transaction.

Earlier in the month, reports said TWC would be open to an offer in the $150-to-$160 per-share range, valuing the MSO at between $66 billion and $68 billion, a 14.5% to 22.1% premium to its trading price at the time.

Some analysts were skeptical that Charter could raise the necessary funds for a deal that size. Reports surfaced last week indicating Char ter was preparing a bearhug letter for TWC at around $130 per share, valuing the company at about $60 billion.

In a blog posted Dec. 19, MoffettNathanson principal and senior analyst Craig Moffett wrote that a $130 pershare offer would likely be snubbed, setting a series of wheels in motion.

“TWC will say ‘no,’ a proxy slate of directors will be prepared, and shareholders will gird for battle,” Moffett wrote. “This could get ugly.”

Price might not be the only thing separating the parties. Charter and TWC also can’t agree on the inherent cost synergies that would result from the merger, according to a Reuters report last Friday. Citing unnamed sources familiar with the negotiations, Reuters said Charter believes synergies from lower programming costs, overhead and other redundancies would amount to about $700 million, while TWC believes it is more in the $500 million range. Moff ett predicted the cost synergies from a merger would be even lower; in a research report released Dec. 2, he estimated they would be about $450 million.

Officials at TWC and Charter declined to comment. LionTree LLC, the New York-based boutique advisory firm headed by former UBS vice chairman Aryeh Bourkoff, and a consultant to Charter on the TWC deal, did not return calls for comment.