Charter in pursuit of Time Warner Cable, willing to make offer of up to $38 billion

NEW YORK, N.Y. – Cable TV operator Charter Communications intensified its pursuit of the much larger Time Warner Cable and vowed Monday to bring an offer directly to shareholders if needed after getting rebuffed by Time Warner’s management.

Time Warner Cable called the move “a non-starter.”

There has been months of speculation over a cable company buying Time Warner Cable, the nation’s No. 2 cable TV provider behind Comcast Corp. Monday’s pronouncement by Charter represents its most public overture yet, even as financial terms haven’t changed significantly. Although there is no formal proposal on the table, Charter said it is willing to make a cash-and-stock offer that could be worth up to $38 billion.

The developments come as broadcast and pay-TV channels demand higher fees from cable TV operators to include those channels in customers’ cable lineups. Last summer, Time Warner Cable had to drop CBS for about a month because of a fee dispute. The cable company lost more than 300,000 video subscribers in the third quarter partly because of that.

By combining, Charter and Time Warner Cable could increase their negotiating powers with the TV channels — and perhaps reduce the fee increases they pass on to customers.

The cable companies could also develop better apps for customers to watch channels on phones and tablet computers, as they try to retain customers who are increasingly watching video on the Internet.

Charter Communications Inc., which is based in Stamford, Conn., said it is prepared to bring the offer directly to shareholders after determining there is “no genuine intent” from Time Warner Cable’s management to engage in merger talks. But Charter said it was open to continued talks with New York-based Time Warner Cable first.

Charter said it has made repeated overtures to Time Warner Cable for more than six months. In December, Charter was planning an offer of less than $135 per share, including $83 per share in cash, according to published reports at the time. That values Time Warner Cable at up to $38 billion. In Monday’s letter, Charter said it was willing to pay in the low $130s per share, including about $83 in cash.

Time Warner Cable’s stock closed at $132.40 on Monday and rose 1.7 per cent to $134.65 in after-hours trading. Shares have risen 35 per cent over the past 12 months, much of it because of expectations of a deal.

Because the latest offer price is close to the current trading price, it’s not likely that Time Warner Cable management or its shareholders will accept it, Stifel analyst Christopher King said. King said he does not expect Time Warner to accept anything less than $150 per share.

In a letter to Time Warner Cable CEO Robert Marcus that Charter released Monday, Charter CEO Thomas Rutledge said that instead of engaging in discussions, Time Warner “came back with a verbal offer at an unrealistic price expectation.”

In a statement late Monday, Marcus said the latest overture from Charter substantially undervalues Time Warner Cable.

“Charter’s latest proposal is a non-starter,” Marcus said.

Time Warner Cable Inc. spun off from media company Time Warner Inc. five years ago. It has about 11.4 million residential TV subscribers as of Sept. 30, while Charter has 4.2 million. Their service territories have little, if any, overlap, so regulatory objections aren’t likely.

Marcus took over as Time Warner Cable’s CEO on Jan. 1. He told an investor conference last month that the company’s current debt level is “prudent,” even as other cable TV companies are reportedly examining adding debt to acquire it. His comments suggested that it would be difficult for Charter to come up with an attractive offer to buy the company.

Consolidation talk has percolated throughout the cable TV world ever since billionaire John Malone’s Liberty Media Corp. took a 27 per cent stake in Charter for $2.6 billion in May. TV distributors are seen banding together to gain more leverage at the bargaining table against media companies that are driving up fees for their TV networks.

Charter’s shares added 1.3 per cent to $136 in extended trading. They have gained 71 per cent over the past year and closed at $134.22 Monday.