Charter Communications and Altice could reportedly face a bidding war for Time Warner Cable (TWC) as the FCC says it does not oppose all cable deals. John Malone’s Charter, the fourth-largest US cableco, is discussing a bid with TWC, the number two…
Charter Communications and Altice could reportedly face a bidding war for Time Warner Cable (TWC) as the FCC says it does not oppose all cable deals.
John Malone’s Charter, the fourth-largest US cableco, is discussing a bid with TWC, the number two player. The valuation is likely to be well above some analysts’ predictions of US$170 per share, the Wall Street Journal reported.
Luxembourg-based Altice, owned by French billionaire Patrick Drahi, has also contacted TWC about a potential deal, various media reported. The telecoms group reportedly met with TWC yesterday – the day after it announced plans to enter the US market with the acquisition of the seventh-largest cableco, Suddenlink.
Speculation on a new, friendly bid from Charter for TWC has mounted since the US$45.2bn Comcast/TWC deal collapsed in April following regulatory resistance.
Charter’s hostile US$132.50 per share offer for the company was rebuffed by the TWC board in January 2014 before Comcast swept in with the US$159 per share offer that led to the recently-abandoned takeover.
Meanwhile, FCC chairman Tom Wheeler recently called the CEOs of Charter, TWC and others to say the commission staff’s opposition to the Comcast/TWC merger did not mean it was against all cable deals, according to a separate WSJ report. While he did not discuss specific potential deals, he said any transaction would be considered on its own merits.
Regulators unlikely to block either deal – analysts
Guggenheim Securities analyst Paul Gallant predicted that regulators would not block a TWC takeover by either Charter or Altice, as neither would create a company with the same nationwide broadband reach as Comcast/TWC.
“But in an uncertain regulatory environment toward cable generally, we think the ‘Tier B’ regulatory issues we have identified – post-merger network investment levels, usage-based pricing and customer care – will matter to TWC, and we view them as cutting favourably for a Charter-TWC deal compared with an Altice-TWC deal.”
Charter-TWC would have about 20 million total subscribers, assuming the former’s planned purchase of Bright House Networks goes ahead, while Altice-TWC would have about 15.5 million. By contrast, Comcast-TWC would have had about 30 million.
In Gallant’s view, Altice’s history of aggressive cost-cutting strategies could prove a concern for the FCC, which aims to boost cable broadband investment.
“[A]ny evidence regulators uncover regarding reduced broadband capital expenditure would get very careful attention,” he said.
Similarly, New Street Research analysts said they believe the Altice-TWC and Charter-TWC deals have relatively equal chances of winning regulatory approval. However, they would expect an Altice review to be more unpredictable and result in stricter conditions on the economics of the deal.
“The big variable in the processes is the reaction of the communities served by TWC and the content companies and distribution competitors that opposed the Comcast deal,” they said.
Other foreign suitors may yet materialise
BTIG analyst Richard Greenfield was more cautious about a Charter-TWC merger, saying that TWC will be increasingly conscious of the regulatory risk posed by such a merger and may yet decide to remain a standalone entity.
As for Altice, he said he would not imagine TWC selling in a mostly stock transaction to a foreign company with a leverage of nearly 4.5x.
TWC may yet attract other foreign suitors, in his view. Cash-rich Softbank, which controls Sprint; Deutsche Telekom, majority owner of T-Mobile US; and Iliad, which is owned by another French billionaire, Xavier Niel, could potentially consider bids, he noted.
