Rob Marcus has a message for Time Warner Cable Inc. (TWC) shareholders: I’m the right guy to decide whether to sell the company.
The 48-year-old chief operating officer is replacing Glenn Britt as Time Warner Cable’s chief executive officer on Jan. 1, amid intense speculation that the company will be acquired. Marcus’s background as Time Warner Inc.’s head of mergers from 2003 to 2005 -- and his later years as chief financial officer of the cable business -- have given him the experience to know a good deal when he sees it, he said in an interview yesterday.
Marcus is taking the reins at a “weird” time, he said. Charter Communications Inc. (CHTR), a cable operator about a third the size of Time Warner Cable in market valuation, is putting together a bid to acquire the company, according to people familiar with the matter. Comcast Corp. (CMCSA) and Cox Communications Inc. also have considered making takeover offers, they said.
“I am the perfect guy to manage the M&A component out there,” Marcus said at the company’s headquarters in New York’s Time Warner Center. “As much as I’d like to be modest, I am kind of built to manage situations like this.”
Charter, backed by billionaire and cable-industry veteran John Malone, is raising about $25 billion in debt financing as part of a potential bid, one of the people with knowledge of the matter said last week. It’s also considered a joint deal with Comcast, the largest U.S. cable operator, to acquire Time Warner Cable together and split up its assets, the people have said.
Time Warner Cable, the second-largest U.S. cable provider, would probably accept a bid of $150 to $160 a share, according to a person familiar with the matter, who asked not to be named because the deliberations are private. That would value the company at as much as $45 billion, about 21 percent above its current market capitalization -- a figure that has already soared this year because of the takeover speculation.
Time Warner Cable has hired proxy solicitor MacKenzie Partners Inc. in case Charter attempts a hostile takeover or sends a so-called bear hug letter with an acquisition bid before Time Warner Cable’s annual meeting next year, the person said. MacKenzie, which specializes in mergers and acquisitions, helps companies with unsolicited tender offers and proxy fights -- where shareholders attempt to gain control over management.
Time Warner Cable shares fell 1.2 percent to $131 at the close in New York, while Charter rose 0.4 percent to $127.75.
Marcus isn’t averse to selling the company, even though he’s worked his way up the ranks at Time Warner Inc. and then its Time Warner Cable spinoff since 1998. If a deal will make more money for shareholders than him running the business, he will pull the trigger, Marcus said.
“I am interested only in the value creation and not in entrenchment or my role here,” he said. If a transaction leads to him not being CEO, “If I want another job, I’m going to get one. I have no doubt. And it’s going to be a good one.”
Marcus also stands to receive more than $50 million in an exit package if the company is sold, according to filings.
Malone, the founder and chairman of Liberty Media Corp. (LMCA), has publicly advocated for U.S. cable consolidation since taking a 27 percent stake in Charter earlier this year. Time Warner Cable has been his primary focus as a takeover target.
No Family Ties
While Comcast and Cox, the third-largest cable operator, are both managed by descendants of their founding families, Time Warner Cable has fewer impediments to a sale. The company, which was spun off from media giant Time Warner in 2009, doesn’t have a dual-class stock structure -- a tool used by owners to block hostile deals. Its largest investor is San Francisco-based Dodge & Cox (DODGX), a mutual fund firm with 5.8 percent of shares outstanding.
That makes a deal more feasible for Charter, either as a friendly acquisition or a hostile takeover. If the transaction comes together, Charter CEO Tom Rutledge would run the new company, according to people familiar with the deal structure.
Rutledge, 60, began his career at American Television & Communications, which became Time Warner Cable. In 2002, he joined Cablevision Systems Corp. (CVC), where he served as chief operating officer. Rutledge then took the Charter CEO job in February 2012.
Cable CEOs are a close-knit group, partly because they rarely compete with one another, Marcus said. The country’s regions are divided up among the various providers, so they don’t frequently fight head-to-head for customers. Marcus’s wife also is friends with Rutledge’s wife, he said.
“The cable industry is more collegial than most,” Marcus said. “But we’re all pros, and it’s business.”
Even so, Marcus has indicated that he would rather work with Comcast CEO Brian Roberts than Malone, according to a person familiar with his thinking. Malone hasn’t been active in the U.S. cable industry since the late 1990s, when he sold Tele-Communications Inc. to AT&T, making him more of an outsider.
If a takeover doesn’t happen, Marcus plans to increase shareholder value by improving the company’s TV features, broadband Internet and phone service -- the core products of the so-called triple-play bundle. While he hasn’t given 2014 guidance, Marcus said he plans to increase capital spending and hiring to boost Internet speeds, deliver more advanced set-top boxes with better user interfaces and improve customer service.
He also is assembling a new team. Time Warner Cable announced yesterday that it hired Dinni Jain, a former executive at Insight Communications, to take Marcus’s old role as head of operations. Time Warner Cable bought Insight in 2012 for about $3 billion.
Jain would get three times his salary of $1 million and bonus of $2.5 million, plus vesting of his stock options in his exit package if the company is sold, according to a filing today. He’s due to receive $4 million in stock-based incentive pay early next year, the filing said.
The company hired AOL Inc.’s Artie Minson as chief financial officer earlier this year, bringing back an executive who used to work at Time Warner Cable. Philip Meeks, meanwhile, joined the company from Cox in June, becoming operations chief for business services.
Today, the company said its vice president of investments, Christian Lee, would be promoted at the end of the year to head of mergers and acquisitions, replacing Satish Adige, who is retiring after 28 years at the cable carrier.
As part of its technology upgrades, Time Warner Cable will give full TV and video-on-demand streaming capability to devices other than its company-issued set-top boxes, such as equipment made by Roku or Samsung Electronics Co. (005930) Currently, streaming services aren’t harmonized among all devices.
Critics of Marcus point to Time Warner Cable’s lackluster operational results since he became COO in December 2010. The company lost 304,000 video customers last quarter, a worse performance than rivals. A blackout of CBS Corp. networks, following a contract dispute, also hurt results.
Marcus may be best suited to dealmaking, rather than day-to-day management, said Landel Hobbs, who preceded Marcus as Time Warner Cable’s chief operating officer and worked with him under Britt.
“Rob is a transaction guy,” Hobbs said in an interview. “Rob is well suited for this role -- much better so than running the company.”
Marcus began his career as a lawyer, where he worked as one of Time Warner’s outside corporate counsels at Paul, Weiss, Rifkind, Wharton & Garrison LLP. He was brought inside the company in 1998 and became its senior vice president of mergers and acquisitions between 2002 and 2005.
“He was my deal guy,” Richard Parsons, Time Warner’s CEO from 2002 to 2007, said in an interview earlier this year.
While Time Warner Cable has jumped almost 40 percent since June 10 -- when Bloomberg reported that Malone was working on a Charter acquisition -- Marcus said he doesn’t feel boxed in to a deal. Even after the run-up, Time Warner Cable is trading at a lower earnings multiple than Charter.
“It’s not like we’re trading at a crazy level now,” Marcus said. “I don’t think we’re at an outlandish place.”
Still, the biggest hurdle to getting a deal done will be Time Warner Cable’s surging valuation, said Craig Moffett, an analyst at MoffettNathanson LLC.
“Time Warner Cable shareholders have set their expectations on what may be an unreasonably high takeout price,” Moffett said in an interview. “A premium on top of a premium on top of a premium.”
Even if the rally makes it harder to continue increasing the stock price, Marcus views the events of the past six months as a positive for shareholders.
“The fact someone might think that we’re an attractive M&A target is a reflection of the value of our assets and the underlying opportunity embedded in those assets,” he said. “Some smart people out there think Time Warner Cable is worth a lot of money.”
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