Time Warner Cable Investors Want at Least $140: Real M&A
Time Warner Cable this week spurned Charter’s offer of $132.50 a share in cash and stock, or about $37 billion, saying it would be open to a deal at $160 a share instead. The cable provider’s shares then surged as high as $137.20, indicating investors expect a better price -- either from Charter, which is backed by billionaire John Malone, or another bidder.
After Time Warner Cable gained almost 40 percent in the past year, shareholders may be satisfied with an offer of $140 to $150 a share, according to price estimates compiled by Bloomberg from stockowners and analysts. Wells Fargo & Co. said that Charter probably won’t offer more than $150 on its own, although it could team up with Comcast Corp. (CMCSA) to complete the takeover. With Time Warner Cable’s 12 million video customers and cable assets in cities from New York to Los Angeles up for grabs, Macquarie Group Ltd. said it doesn’t rule out a bidding war for the operator.
Charter’s offer “was definitely the first bid as part of a negotiating strategy,” said Steven Soranno, a Bethesda, Maryland-based analyst at Calvert Investments Inc., which oversees more than $12 billion including Time Warner Cable shares. “I think $145 would be a serious number.”
Charter’s proposal includes about $83 of cash per share and about $49.50 in stock to create a combined company that would be the third-largest pay-TV operator by customers, behind Comcast and DirecTV.
“Our objective was to talk to management and try to get them engaged,” Charter Chief Executive Officer Tom Rutledge said in an interview on Jan. 13. “They have not, so we’re going to make our case to shareholders about why this deal is good for them and hope they ask management and the board to watch out for the interests of shareholders.”
Charter sent a letter to Time Warner Cable CEO Rob Marcus this week explaining why the company’s offer is beneficial for investors, and held a conference call and gave a presentation yesterday to walk through its offer.
Marcus said this week that New York-based Time Warner Cable is open to a deal with Charter for $160 a share, consisting of $100 in cash and $60 in Charter common stock.
Justin Venech, a spokesman for Stamford, Connecticut-based Charter, declined to comment yesterday beyond what Rutledge has already said about Charter’s bidding plan.
Nothing in Charter’s presentation “changes the fact that its proposal is grossly inadequate,” Time Warner Cable said in a statement yesterday. “We are confident in our standalone plan and we are not going to let Charter steal the company.”
Charter executives are planning to begin meeting with Time Warner Cable shareholders today to convince them to support their offer.
Macquarie surveyed about 50 Time Warner Cable shareholders and found that almost two-thirds said the minimum price they were willing to accept was $140 to $150 a share. Only 22 percent required a bid higher than $150, Amy Yong, a New York-based analyst at Macquarie, wrote in a Jan. 13 report.
Charter’s offer price is “more of a floor than a ceiling,” said Chris Marangi, a money manager at Gamco Investors Inc., which oversees $43.5 billion including Time Warner Cable shares. “That said, the players involved are very disciplined. Charter might be willing to raise its initial offer, but it’s hard to see it getting much above $150.”
Charter may have more room to negotiate with Time Warner Cable shareholders than its management. JPMorgan Chase & Co. estimates many investors would sell at about $140 to $145 a share.
“Getting a deal done in the face of initial management objection still has a decent chance of success,” Philip Cusick, an analyst for the New York-based bank, wrote in a Jan. 13 note.
Holding out for the chance to get $160 apiece may not be worth the wait, according to Peter Zeuli, chief investment officer of Voorhees, New Jersey-based Philadelphia Investment Partners LLC. Zeuli said his firm sold its Time Warner Cable shares and instead bought options on the stock because he doesn’t think a transaction is likely to close until later in the year.
If Charter and Time Warner Cable can get the deal done quickly, $145 to $150 would be enough, he said.
“This is going to be long and drawn out,” Zeuli said in a phone interview. “If investors take a common sense view of things, just get it done now at a lower valuation and then take your money and go somewhere else.”
Today, Time Warner Cable shares fell 0.6 percent to $135.13.
Charter and Malone may not be inclined to raise their bid much higher, particularly given some of Time Warner Cable’s recent setbacks and the pressure it’s facing from streaming services such as Netflix Inc., (NFLX) said Matthew Harrigan, a Denver-based analyst at Wunderlich Securities Inc.
Time Warner Cable lost 215,000 video subscribers in the fourth quarter, bringing its customer losses for 2013 to about 825,000.
Charter probably won’t offer more than $150 a share as a stand-alone bidder, although Time Warner Cable could be sold in pieces potentially as part of a joint Comcast-Charter offer, Marci Ryvicker, a New York-based analyst at Wells Fargo, wrote in a Jan. 14 report. Comcast is considering a bid, either on its own or with Charter, people with knowledge of the matter have said.
John Demming, a spokesman for Philadelphia-based Comcast, didn’t respond to a request for comment.
Charter, which emerged from bankruptcy in 2009, has just $41 million of cash and a market value of $14.3 billion, according to data compiled by Bloomberg. Comcast is almost 10 times the size and has $1.6 billion of cash, the data show.
Investors will weigh the mix of stock and cash that makes up any boosted bid in addition to the price, said Soranno of Calvert Investments. The fewer the synergies, “the more we would be looking for a cash composition,” Soranno said. He declined to specify what he would consider an appropriate cash amount.
There should be a price between Charter’s $132.50 bid and Time Warner Cable’s $160 counter that can get a deal done, said Peter Drippe, a New York-based fund manager who helps run an event-driven fund at Visium Asset Management LP, which oversees about $5.5 billion including Time Warner Cable shares.
Charter’s offer is “a placeholder to start negotiations so they can finally get them to the table and have a real conversation about value,” Drippe said in a phone interview. “I think $150 is a fair price and I would certainly think that would be acceptable to most people.”
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