TWC’s Marcus Makes Case For Rejecting Charter Bid

CEO Asking MSO's Investors to Choose Sides
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Time Warner Cable chairman and CEO Rob Marcus laid his cards on the table last week, essentially asking the cable company’s investors to choose sides in an ongoing takeover attempt by Charter Communications.

And choose they may have to: Sources have said Charter and its 27% owner, Liberty Media, are assembling a slate of deal-friendly directors for presentation at TWC’s May annual shareholders’ meeting. The deadline for proposals is Feb. 15.

In the meantime, TWC carved out 90 minutes last week to present its case for maintaining the status quo, laying out a three-year operations plan heavy on improving customer service, doubling commercial revenue to $5 billion by 2018 and adding 1 million new customer relationships to the fold in the next three years.

“The value offered by Charter falls well short of the value that we can create by executing on our current operating plan,” Marcus said.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett said the plan sent a clear message to TWC shareholders, adding that many of the synergies Charter has talked about in the past are more like “differences in operating philosophy.”

“The difference comes down to investors’ preference for one management team over another,” Moffett said.

Most analysts expect Charter to modify its bid, but probably not to the $160-per-share level that TWC has suggested.

And just who Liberty and Charter will pick for its competing board slate is still open to speculation, but Liberty chairman John Malone is known for keeping seasoned cable executives on his payroll for years for just such types of duties.

“[The] next steps could get ugly,” said Northland Capital Markets senior media analyst Tom Eagan.

In the meantime, Time Warner Cable’s case was surprisingly better than many expected.

The operator has stumbled of late: It lost a total of 833,000 basic-video customers in 2013, 57% more than the 532,000 lost in 2012. But Marcus presented a focused, well-thought out plan aimed at to win back video customers withimroved service quality and products; adding 500,000 former DSL customers to its broadband rolls in the next 18 months; and boosting residential revenue by 1% in 2014 and 4% by 2016.

Backed up with some surprisingly good recent numbers — TWC said primary service units were up by 100,000 year-over-year in January — Eagan wrote that TWC’s residential revenue growth guidance “could be driven by customer growth, not just rate increases.”

Now all the MSO has to do is convince shareholders.

TAKEAWAY

Time Warner Cable chairman Rob Marcus last week asked investors to pick sides in the takeover battle with Charter and presented a three-year operations plan for improving service and revenue.

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