Katie Perry at the Time Warner Cable-sponsored American Music Awards (Image credit: Flickr/Globovision)

Time Warner Cable hangs up on $61bn Charter offer

The communications giant has ceremonially rejected an offer at $132.50 a share, saying it won't get into bed for anything less than $160.

by Emma Haslett
Last Updated: 13 Feb 2014

Unusual goings-on across the pond, where Charter Communications – the David of cable communications (market cap: $14bn) – has just gone public on a bid for its Goliath-sized rival, Time Warner Cable (market cap: $38bn).

It isn’t the first time Charter has made an approach for the company: it’s already made offers of $114 and $127 a share on the quiet, before mooting $132.50 yesterday, which values TWC at $61bn including debt. But TWC has called all the offers ‘grossly inadequate’, saying it wouldn’t consider anything below $160 per share (eight times earnings before interest).

Charter chief executive Tom Rutledge is frustrated.

‘We haven’t received a serious response,’ he 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 that they ask management and the board to watch out for the interests of shareholders.’

You can see why Time Warner Cable isn’t taking the offer entirely seriously: of the $132.50, $83 is in cash, with the rest made up of Charter’s own stock. Raising its offer beyond this would be problematic, because Liberty Media, which owns 27% of Charter, doesn’t have much wiggle room when it comes to raising debt – which is why so much of its offer is in stock.

Under the current offer, Time Warner Cable shareholders will end up with 45% of the company. If Charter raises its offer, it would have to be the stock component that went up, meaning TWC shareholders would become Charter’s owners. In other words, the takeover-ers would become the overtaken.

Rutledge, though, insisted that TWC shareholders should consider the current offer, pointing out that a) combining the two companies would give them both greater bargaining power with content providers and b) although the offer is a few dollars below TWC’s peak share price over the past few months, it’s only as high as it is (it’s risen by 50% over the past few months) because of speculation over a potential takeover. Indeed, TWC actually lost more than 500,000 video customers during the second and third quarter of 2013.

Still, TWC’s management is insistent that the offer isn’t enough.

‘Our house wasn’t for sale, somebody knocked on our door and made a low-ball proposal,’ TWC chief exec Rob Marcus told the FT. ‘They didn’t just do it once, they did it three times. It is obvious that what they are trying to do here is buy a premium asset at a bargain-basement price.’

An exciting start to 2014, though, n’est-ce pas? Coming hot on the heels of Suntory’s $13.6bn acquisition of US distiller Beam, this year is already shaping up to be a vintage one for M&A geeks.

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