With Charter in pursuit, video customers fading, Time Warner Cable lays out 3-year growth plan

NEW YORK, N.Y. – Time Warner Cable Inc. laid out a three-year plan for boosting revenue Thursday as it sought to offer investors an alternative to a takeover bid from smaller rival Charter Communications Inc.

Earlier this month, Charter said it would bring a cash-and-stock offer directly to Time Warner Cable shareholders, after getting rebuffed by the company’s management, of about $38 billion, or about $132.50 per share. The combined entity would benefit from cost savings and what Charter has said is a superior management team.

Time Warner Cable CEO Rob Marcus, on his first quarterly earnings call since taking the top job Jan. 1, repeated that the bid “substantially undervalues our company.” He maintained that Time Warner Cable would accept an offer of $160 per share, with $100 in cash and $60 in Charter stock.

“What I think hopefully became abundantly clear is that we feel very good about our ability to run this business, and we can create a whole lot of value for shareholders,” Marcus told investors Thursday.

Cable industry pioneer John Malone’s $2.6 billion investment in Charter in March set off the latest spurt of consolidation activity. Cable companies are seeking bigger size to face down the rising cost of content, while solidifying their foothold as a major Internet provider in many markets.

And the company’s video customers are shrinking. While Time Warner Cable said its relationship with its customers was improving, it lost another 217,000 home video subscribers in the October-December quarter, ending the year with 11.2 million. Excluding the September quarter, when a month-long blackout of CBS due to a fee dispute resulted in a subscriber exodus, it was the worst performance in more than five years. On an annual basis, the company lost 833,000 video customers, a figure that has grown worse for the last three years.

But it added 39,000 home Internet customers, ending the year with 11.1 million.

Chief Financial Officer Artie Minson said the company added 25,000 customer relationships in January, compared to a loss of 28,000 in January 2013. While he didn’t specify which services were added — Internet, video or voice — he said it was the “best January from a residential subscriber perspective in the last five years.”

In its three-year plan, the company said it would boost annual capital spending by $500 million to $3.7 billion a year to improve top Internet speeds in markets such as New York and Los Angeles, connect more office buildings with high-speed Internet, and deploy more latest-generation set-top boxes, which allow for slick new graphical interfaces and better ways to find content. So far the guides are in 2.8 million homes, but the company hopes to increase that to 6 million by the end of the year.

Time Warner Cable hopes that the improvements grow annual revenue by 5.4 per cent per year, hitting nearly $26 billion in 2016.

For 2014, Time Warner Cable expects revenue to grow 4 to 5 per cent, implying revenue of about $23 billion, slightly above Wall Street’s prediction.

But growth is difficult because the market for TV and Internet is established, said Barry Parr, an analyst at Outsell Inc. While Time Warner Cable is positioned well for the growth in demand for data, “the new places they can sell cable is very small,” he said.

“There are reasons they got picked out as a takeover target,” Parr said. “The tremendous growth they’ve had over the last 10 years is over. As a result, people who bought that stock and have had that ride are going to be looking for some changes.”

To appease shareholders, the New York company also lifted its quarterly dividend by 15 per cent to 75 cents per share.

For the period ended Dec. 31, Time Warner Cable earned $540 million, or $1.89 per share. That compares with $513 million, or $1.68 per share, a year earlier.

Removing a tax matter and other items, earnings were $1.82 per share. Analysts surveyed by FactSet expected earnings of $1.73 per share.

Revenue rose 2 per cent to $5.58 billion from $5.49 billion. Wall Street predicted $5.56 billion.

Shares rose $1.73, or 1.3 per cent, to $133.83 in afternoon trading.