Charter Communications Inc. offered Monday to buy Time Warner Cable Inc. for about $132.50 a share, valuing the second-largest U.S. cable provider at more than $61 billion, including debt.
Excluding debt, Charter would pay about $37.3 billion. The proposal includes about $83 cash per share and about $49.50 in Charter stock, said Tom Rutledge, Charter’s chief executive officer. The offer is the third-largest for any global company since 2009, according to financial data compiled by Bloomberg News.
Charter sent a letter to Time Warner Cable Chief Executive Officer Rob Marcus, explaining why the company’s offer is beneficial for shareholders. Charter is attempting to acquire Time Warner Cable, a company more than twice Charter’s size, to create a provider of TV, Internet and phone services for about 20 million customers in 38 states. Rutledge said he last proposed an acquisition in late December, around Christmas, which Marcus rejected.
“We haven’t received a serious response,” Rutledge said. “Our objective was to talk to management and try to get them engaged. 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.”
Time Warner Cable didn’t immediately respond to a request for comment on Charter’s letter. Time Warner Cable dropped less than 1 percent to $132.40, giving it a market value of $37.3 billion. The shares have climbed almost 40 percent since June on renewed speculation of cable-industry mergers.
Time Warner Cable’s operations in Northeast Ohio and Western Pennsylvania make up the third-largest division of the New York-based company.
Rutledge and Charter Chief Financial Officer Chris Winfrey met with Marcus and Time Warner Cable CFO Artie Minson in December to walk through details of the offer, including structure, financing, tax and cash flow implications, according to the letter. Charter indicated its willingness then to submit a proposal in the low $130s, including a cash component of $83.
When Time Warner Cable responded to that with a request for a higher bid including a higher cash component, Charter determined its bigger peer wasn’t interested in pursuing a merger agreement, according to the letter.
Time Warner Cable’s response was “not a serious offer,” said Rutledge, who declined to say the exact price. “They knew the price they were offering was designed to not appeal.”
Charter is preserving “all options going forward,” according to the letter. That may include nominating a slate of directors to Time Warner Cable’s board, a person familiar with the matter said previously. Still, Rutledge would prefer to complete a friendly cash and stock deal as soon as possible, he said. Charter has “fully negotiated” financing and can be “in a position to sign commitment letters in a matter of days,” the letter shows.
Time Warner Cable shareholders would own about 45 percent of the new company in the proposed deal, Rutledge said. The combined company would have more leverage in future negotiations with content providers, who have been raising annual prices at about 10 percent per year. An acquisition would also allow Charter, the fourth-largest cable operator, to use its net operating losses as a future tax shield.
Moreover, Charter management would improve Time Warner Cable’s customer service and restart video growth, Rutledge said.
“Since we made our first proposal, Time Warner Cable has lost another half million video customers,” Rutledge said. “Their customer service continues to decline in every measure. We can improve it. We have a demonstrated track record of improving customer service. It’s a question of credibility.”
Time Warner Cable has resisted Charter’s approaches to reach a friendly deal on several occasions over the past few months: in June, October and, most recently, December, Rutledge said.
Bloomberg first reported Charter’s intent to make an offer for Time Warner Cable last month. A successful takeover would be the largest of a cable company since Comcast Corp. acquired AT&T Broadband in 2001 for about $72 billion.
Billionaire John Malone, whose Liberty Media Corp. is Charter’s largest shareholder, told investors last month he expects Time Warner Cable to reject Charter’s opening bid.