By Liana B. Baker and Nicola Leske
NEW YORK Jan 13 Charter Communications Inc
on Monday formally offered to acquire larger rival Time
Warner Cable for $37.3 billion, sparking what is likely
to be a contentious battle for control of the No. 2 U.S. cable
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 by not investing enough in taking on competitors and
shifting to digital technology. Malone's Liberty Media Corp
owns 27 percent of Charter.
Including debt, the deal is worth $62.35 billion. Time
Warner Cable shareholders would get 45 percent ownership in the
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
"In essence, these guys are just trying to get a premium
asset at a bargain basement price," said Time Warner Cable Chief
Executive Officer Rob Marcus in an interview. "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 Jan. 1 after eight
years, 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 now plans to take the deal directly to Time Warner
Cable shareholders, said Charter's CEO Tom Rutledge in an
"(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.
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
"This is just the opening round of the negotiations," Yong
said. "This was Charter sending notice that they won't overpay."
Charter CEO Rutledge wouldn't 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.
ISI analyst Vijay Jayant said that "we think an ultimate
consolidation of the two companies would be beneficial for both
sets of shareholders."
Rutledge declined to give an estimate on potential cost
savings from a deal but said they were "significant" and his
company 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.
Liberty Media, Charter's largest stockholder, has the option
to invest more equity in the company and wants to maintain its
current 27 percent stake in the company.
In a statement, a Liberty spokeswoman said, "We support
Charter's efforts and look forward to participating."
Rutledge said he was not in talks with Comcast Corp
to get the No. 1 U.S. cable provider involved in the
bidding process. Marcus at Time Warner Cable declined to comment
"This is Charter bidding for Time Warner. That's the only
discussion we have going," he said.
Comcast, which has been seen as a candidate to bid alone or
jointly for Time Warner Cable, did not immediately respond to a
request for comment.
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.
Minson, the finance chief, said Time Warner Cable would
increase its capital investment this year to improve the
company's product and reliability.
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.