By Liana B. Baker
Jan 14 Charter Communications unleashed
a verbal attack on Time Warner Cable on Tuesday, saying
the cable operator's executives had "failed" as Charter tried to
rally investors to accept its bid.
Charter's top executives slammed Time Warner Cable for
having the industry's lowest customer satisfaction and "negative
momentum." Charter argues that Time Warner Cable is better off
in its hands because its management can spearhead a turnaround
of its larger rival.
Executives from the No. 4 cable operator made these comments
on a conference call a day after it launched a bid for Time
Warner Cable at $132.50 per share, consisting of around $83 per
share in cash and its own stock. The deal, valued at $37.3
billion, was rejected by Time Warner Cable's board for being
Charter has been trying for six months to strike a deal to
buy Time Warner Cable and sway its shareholders after three of
its offers have been rebuffed.
While executives at Charter and its largest shareholder
Liberty Media Corp have said before that they could do
a better job running the No. 2 cable provider, they saved their
harshest criticism to date for Tuesday's call.
"This negative momentum isn't simply result of an operating
plan over the last year, it is the failed plan over the past
half decade," said Charter's Chief Operating Officer John
While he argued that Time Warner Cable has fallen behind by
not investing enough in taking on competitors and shifting to
digital technology, Charter has also struggled in recent years.
It emerged from bankruptcy in 2009 and is in the midst of a
turnaround under new management.
SECOND TO LAST
While customers from all cable companies complain about
their service, Time Warner Cable is dead last in customer
satisfaction surveys in three of the country's four regions,
according to J.D. Power. In the fourth region, the West, it
ranks seventh of nine subscription TV providers surveyed.
Still, Charter does not fare much better and ranks second to
last in three of the four regions.
In response to Charter's comment, Time Warner Cable released
a statement saying, "We are confident in our standalone plan and
we are not going to let Charter steal the company."
It also noted that Charter itself had referred to Time
Warner Cable as "the biggest and best M&A option available."
Reuters and other outlets have previously reported that No.
1 cable provider Comcast Corp was weighing a bid, but
Charter Chief Executive Officer Tom Rutledge added on the call
that he is not aware of any other bidder pursuing Time Warner
Charter released a presentation earlier in the day saying
that it expects annual synergies of $500 million and other
benefits such as tax savings from its proposed acquisition.
Annual synergies from a deal would grow to $750 million from
$500 million over time, Charter said. The combined company would
have to take on $20.5 billion in new debt, or $72.16 per share,
which would bring it to a leverage ratio of 4.8 times to five
The combined company may also have to do "swaps and
divestitures" to make the regions it serves more efficient,
according to one of the slides in the presentation. Some
analysts have said that No. 1 cable provider Comcast would be
interested in some of Time Warner Cable's markets such as New
York, Los Angeles and Dallas.
"SLOW INTERNET SERVICES"
Charter also said it was aiming to secure committed bridge
financing of $3.5 billion and would have to pay $600 million in
fees, interest and expenses.
Charter explained in its 30-page presentation how it would
accelerate Time Warner Cable's customer and cash-flow growth,
increase its margins and roll out higher Internet speeds. Time
Warner Cable did not have an immediate response.
Charter executives alleged that Time Warner Cable had
focused on selling "sub-standard limited basic video packages
and slow Internet services."
Charter said it can use its tax assets, about $7.8 billion
in loss carry forwards to reduce a merged company's operating
earnings and tax payments.
These credits would transfer to the combined company, it
said in its presentation to investors, "and should do so without
additional restrictions, allowing NewCo to use Charter's loss
carry forwards against Charter's and TWC's combined taxable
It argued that Time Warner Cable share price would decline
without a deal. Time Warner Cable shares have risen from the
$90s to the $130s since takeover speculation began six months
ago and were trading 3 percent higher on Tuesday at $136.29 per
"Absent a serious M&A alternative, TWC faces significant
potential share price downside," Charter said.