Time Warner Cable investors were in for a wild ride for a second straight day Friday, as shares rose nearly 7% in early trading after reports surfaced that Charter Communications was gearing up to make a bid for cable giant before the end of the year.
Speculation over a Charter/Time Warner Cable deal first came to light in June. While anticipation over a deal waned somewhat in subsequent months, they reached a near-fever pitch on Oct. 31 after the nation’s second largest MSO reported dismal third quarter results, losing 306,000 residential basic video customers.
Time Warner Cable shares rose as high as $128.17 each on Friday (up 6.7% or $8.02 per share) and beating its previous 52-week high of $124 each, before closing at $123.51 (up 2.8% or $3.36 each). Those gains were on top of the 3% rise in the stock’s price on Oct. 31, after the poor earnings fueled speculation that a deal was imminent.
A Reuters report Friday citing unnamed sources that claim Charter is preparing to launch a bid by year end seems to have created the latest temporary frenzy for the stock. According to the report, the company is working on a deal structure that would appeal to the larger company.
Time Warner Cable has a market capitalization of about $34 billion, nearly three times Charter’s $13 billion market cap. In the past, sources have said TWC was cool to previous Charter overtures because they relied heavily on using Time Warner Cable’s balance sheet to finance a deal.
Charter declined to comment on the speculation.
The thought that Charter would make a bid by year-end for Time Warner Cable is nothing new – several analysts have said just that after deal rumors began swirling around the company in June. Structure has always been an issue, although some analysts have said that a combination of stock and debt could appease TWC shareholders. And the longer it takes for an offer, the greater the danger that TWC’s speculation-fueled stock price could lose its air. Pivotal Research Group principal and media & communications analyst Jeff Wlodarczak has written that TWC stock could fall back to around $100 per share without a deal, before rebounding as operational results are expected to improve in the fourth quarter.