Time Warner Cable: Charter goes hostile with $37bn bid

http://www.theguardian.com/business/2014/jan/14/time-warner-cable-charter-hostile-bid

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Charter Communications on Monday formally offered to acquire larger rival Time Warner Cable for $US37.3bn, sparking what is likely to be a contentious battle for control of the second largest US cable operator.

Charter, the number four operator which is backed by billionaire John Malone, proposed paying $US132.50 per share — barely higher than where Time Warner Cable shares closed on Monday — consisting of around $83 per share in cash and its own stock.

The offer is the boldest sign yet that Malone thinks that new managers could do a better job running the company, which has fallen behind by not investing enough in taking on competitors and shifting to digital technology. Malone's Liberty Media owns 27% of Charter.

Including debt, the deal is worth $62.35bn. Time Warner Cable shareholders would get 45% ownership in the combined company.

The letter was Charter's third attempt to buy the company, according to its executives, and within a few hours of receiving it, Time Warner Cable's board rejected the offer as "grossly inadequate''.

"In essence, these guys are just trying to get a premium asset at a bargain basement price," said Time Warner Cable chief executive Rob Marcus. "This makes the job of fending it off rather straightforward. Our shareholders will see it as what it is, an attempt to steal the company."

Marcus, who took over the top post on January 1, said the board told Charter it was open to a price of $160 per share, consisting of $100 in cash and $60 per share of Charter's stock.

Charter now plans to take the deal directly to Time Warner Cable shareholders, said Charter's boss Tom Rutledge.

"(Time Warner Cable) came back to us with a design to be dismissive. They have not engaged with us. All of the conversations have been one way," Rutledge said.

Rutledge, who spent 23 years at Time Warner Cable earlier in his career, told Reuters he could run the company better and pointed to how Time Warner Cable shed more than 500,000 video subscribers in the past two quarters. <br />Rutledge said Time Warner Cable shareholders should be happy with the $83 per share cash component of the deal, since it is not that far off the stock price before the takeover speculation began six months ago.

"The purpose of going to the public is to talk to Time Warner shareholders and to ask them to consider how valuable this deal is and to ask management and the board to engage," he said. He added that a proxy contest in which Time Warner Cable shareholders could vote in new directors friendly to a Charter bid was a possibility. The season for naming such rival board slates starts this week.

Time Warner Cable's chief financial officer Arthur Minson said he doubted Charter could launch a viable proxy fight.

"Essentially what you'd have to do is try to get new board members who would have to breach their fiduciary duty by trying to sell the company to Charter cheaply," Minson said.

Macquarie analyst Amy Yong said she expects Charter to raise its bid.

"This is just the opening round of the negotiations," Yong said. "This was Charter sending notice that they won't overpay."

Rutledge would not comment on whether the company would consider a higher offer, and said the company would be disciplined about raising the bid.

The letter was necessary, he said, because talks with the board had not progressed in the past six months. A hostile move is unusual, he admitted, in the clubby cable industry, where companies do not directly compete with each other.

Rutledge said Charter had financing was in place and banks could sign commitment letters "in a matter of days."

Charter stock was up 1.3 percent in after-hours trading while Time Warner Cable shares were up 1.8 percent at $135.

Comcast is the number one cable provider in the US and has been seen as a candidate to bid alone or jointly for Time Warner Cable. It did not immediately respond to a request for comment.

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