Is TWC Eyeing Charter?


Pali Research media analyst Richard Greenfield went out on a limb last week, speculating that once Time Warner Cable completes its split from parent Time Warner Inc., it could set its sights on Charter Communications.

Greenfield wrote that he didn’t expect a TWC bid for Charter until at least middle to late 2009 — the TWC split is scheduled to be completed at the end of this year. And Greenfield’s reason for picking Charter as the next acquisition candidate wasn’t necessarily because of its superior operations or its proximity to existing TWC systems. Greenfield appears to have picked Charter because it may be the proverbial only girl at the dance.

In his report, Greenfield noted that other possible acquisition targets — Cablevision Systems and Cox Communications — are family controlled and haven’t given any signals that they would be open to a deal. Charter, although controlled by Microsoft co-founder Paul Allen, may be more open to a deal because of its lagging stock price, currently at about $1.39 per share.

Greenfield believes Charter could be had for about $5 per share, adding that the equity price is immaterial because of Charter’s $19 billion debt load. Greenfield estimated that the combined Charter/TWC would have a leverage ratio of about 5 times 2009 cash flow, compared to Charter’s current leverage ratio of more than 9 times.