By Liana B. Baker and Nicola Leske
NEW YORK Jan 13 Charter Communications Inc
formally offered on Monday to acquire larger rival Time
Warner Cable for $37.3 billion, signaling the start of
what is likely to be a contentious battle for control of the No.
2 U.S. cable operator.
Charter, the No. 4 cable operator, proposed paying $132.50
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.
Monday's offer is the boldest sign yet that cable
billionaire and dealmaker John Malone thinks that new managers
could do a better job running the company, which has fallen
behind and underinvested in taking on competitors and on digital
Including debt, the deal is worth $62.35 billion. Time
Warner Cable shareholders would get 45 percent ownership in the
Charter said on Monday that it held discussions with Time
Warner Cable, which is led by Chief Executive Officer Rob
Marcus, but the company wanted a higher bid and talks have not
been constructive. Charter now plans to take the deal directly
to Time Warner Cable shareholders.
"They came back to us with a design to be dismissive. They
have not engaged with us. All of the conversations have been one
way," Charter's CEO Tom Rutledge said in an interview.
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 has lost about 500,000 video
subscribers in the past two quarters.
He said Time Warner Cable shareholders should be happy with
the $83 per share cash component of the deal, since it is at the
same level as 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 engaged," he
Rutledge admitted that a hostile offer in the friendly cable
industry where companies do not directly compete with each other
is "unusual" but he said Monday's letter was necessary because
talks have not progressed over the past six months.
He said financing was in place and banks could sign
commitment letters "in a matter of days."
"Putting Charter and Time Warner Cable together makes it a
premier asset," Rutledge said.
Charter stock was up 1.3 percent in after-hours trading
while Time Warner Cable shares were up 1.8 percent at $135.
Rutledge declined to give an estimate on potential cost
savings from a deal but said they were "significant" and they
had told Time Warner Cable what they were. Reuters has
previously reported that Liberty management had told investors
that synergies could be as high as $700 million.
Rutledge said Malone's Liberty Media Corp wants to
retain its 25 percent ownership stake in Charter and has the
option to invest equity in the deal. He said the exact amount
was being worked out.
Time Warner Cable was not immediately available for comment.
Rutledge said he was not in talks with Comcast to get the No. 1
provider involved in the bidding process.
"This is Charter bidding for Time Warner. That's the only
discussion we have going," he said.
Charter said that it had made repeated overtures to Time
Warner Cable for more than six months but that the response led
Charter to determine that there was no intent to engage in a
Charter said in a letter to Time Warner Cable that the
company had unrealistic price expectations.
The smaller rival said it remained open to all options but
that it was fully prepared to finalize a deal on an expedited
Time Warner has become one of the industry's weakest
performers. Leichtman Research Group estimates that over the
past two years, the company lagged rivals by losing nearly 10
percent of nearly 13 million video customers.
Charter said Goldman Sachs and Liontree Advisors were lead
advisers. Guggenheim Securities was also a financial adviser to
BofA Merrill Lynch, Credit Suisse, and Deutsche Bank
Securities Inc are also financial advisers to Charter, and
together with Goldman Sachs, are leading the financing for the
transaction. The law firms Wachtell, Lipton, Rosen & Katz and
Kirkland & Ellis LLP are also representing Charter.