Charter Said to Tap Goldman Sachs for TWC Bid Financing

Charter Communications Inc. added Goldman Sachs Group Inc. and Credit Suisse Group AG to a group of banks prepared to lend it as much as $25 billion for its Time Warner Cable Inc. bid, people with knowledge of the matter said.

The group also includes Bank of America Corp., Deutsche Bank AG and Barclays Plc, said one of the people, who asked not to be named because the discussions are private. While Charter hasn’t signed a letter of commitment yet, the banks have agreed to fund a bid, the people said.

Charter met with the lenders last week to set financing terms, one of the people said. The fourth-largest U.S. cable operator is planning to offer less than $135 per Time Warner Cable share, a person said last week. At that level, Time Warner Cable would be worth about $62 billion, including debt, a price that’s not much higher than its current enterprise value.

By buying Time Warner Cable, Charter could generate as much as $1 billion in annual cost savings by getting better deals on programming and cutting overhead, according to Matthew Harrigan, an analyst with Wunderlich Securities Inc. in Denver. Still, it would mean acquiring a much bigger company: Time Warner Cable is the second-largest U.S. cable provider, with a market value that’s almost three times the size of Charter’s.

“There are significant cost savings that you could have, particularly from programming costs,” Craig Moffett, an analyst at MoffettNathanson LLC, said in a Bloomberg TV interview about a potential deal.

Share Sale?

The bid will include cash and Charter’s stock, and Charter may also sell shares in a public offering, one of the people said. John Malone’s Liberty Media Corp., currently Charter’s largest shareholder, will contribute cash to maintain about a 27 percent stake in the new company, the person said.

Alex Dudley, a spokesman for Stamford, Connecticut-based Charter, and Susan Leepson, a spokeswoman for Time Warner Cable, declined to comment yesterday, as did representatives of Goldman Sachs and Credit Suisse. Courtnee Ulrich, a spokeswoman for Liberty, didn’t immediately respond to a request for comment.

Malone hosted several Time Warner Cable shareholders, including Paulson & Co., last week in Colorado to discuss his interest in Charter acquiring the New York-based cable company, said a person with knowledge of the meeting. He told those investors that Charter will soon make an unsolicited offer, which he expects to be rejected, the person said. Malone encouraged the shareholders to press Time Warner Cable to agree to a merger, this person said.

Cash, Equity

Moffett, who moderated part of the Liberty meeting with shareholders, said several Time Warner Cable investors he’s spoken with aren’t turned off by the concept of receiving Charter stock in addition to cash, even as Charter has gained 71 percent this year.

“While Time Warner Cable is talking about the need for a lot of cash in order to make it interesting for shareholders, and it’s their belief that’s what shareholders want, the shareholders I’ve been talking to actually really like the idea of getting Charter equity,” Moffett said.

Paulson & Co. owned 4 million Time Warner Cable shares as of Sept. 30, according to data compiled by Bloomberg. Armel Leslie, a spokesman for Paulson & Co. with WalekPeppercomm, didn’t immediately respond to a request for comment.

Malone also has held internal discussions about assembling a list of directors for a potential proxy fight at Time Warner Cable’s 2014 annual meeting, another person said. The window to nominate board members is Jan. 16 to Feb. 15.

Comcast Bid?

Time Warner Cable wants at least $150 a share before it accepts a deal, a person with knowledge of the matter has said. Some Time Warner Cable shareholders are pushing Comcast Corp. to make a competitive offer to acquire the entire company despite potential regulatory resistance, one of the people said.

Time Warner Cable shares rose less than 1 percent to $133.03 at the close in New York. Charter fell 1 percent to $130.11.

It would be risky for Charter to bid too high for Time Warner Cable, which is losing video subscribers to competitors such as AT&T Inc.’s U-Verse and Verizon Communications Inc.’s FiOS, said Harrigan of Wunderlich.

Time Warner Cable shed more video subscribers than any other major cable company in the most recent quarter, dropping 304,000 customers in the period, according to data compiled by Bloomberg. While a dispute with CBS added to the decline, that compares with a loss of just 27,000 video subscribers at Charter and a 129,000 drop at Comcast in the same period.

Even so, Time Warner Cable is still expanding its residential Internet and phone businesses, and its business-services revenue is set to double over the next four or five years, according to the company’s forecast.

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