John Malone-backed cableco Charter Communications is reportedly considering a new bid for Time Warner Cable (TWC) now Comcast’s US$45bn takeover has fallen through.
Charter’s US$132.50 per share offer for TWC, valuing the company at US$37.3bn,…
John Malone-backed cableco Charter Communications is reportedly considering a new bid for Time Warner Cable (TWC) now Comcast’s US$45bn takeover has fallen through.
Charter’s US$132.50 per share offer for TWC, valuing the company at US$37.3bn, was rebuffed by the target’s board in January 2014.
Shortly afterward, Comcast – the nation’s largest cableco – made its nearly US$159 per share offer, leading to a merger agreement in February 2014. As reported last week, however, the deal has now been abandoned following opposition from regulators.
Local reports have already emerged stating that Charter – the third-largest cableco – is exploring a new bid for larger rival TWC. Analysts are also predicting that the sector will continue to consolidate, although opinions vary on who will acquire whom.
Wells Fargo analysts said in a recent note to investors that, according to their calculations, Charter could buy TWC for US$155-US$165 per share.
“The key here is that Charter’s currency is much higher than it was in ’13 and fundamentals have improved, in our view – at both companies actually.”
BTIG analyst Richard Greenfield took a different tack in a recent blog post, saying that TWC should not be in a hurry to sell to Charter and would be better advised to consider taking advantage of its under-leveraged balance sheet to grow in scale.
“Why should TWC with 11.7 million residential broadband subscribers in some of the most important DMAs in the country (including NYC and LA) even consider selling themselves to a company [Charter] that has all of 4.8 million broadband subscribers in at best second—tier markets?” he asked.
He also questioned why TWC would take Charter stock given that the latter trades at a significant premium, bolstered by its management team’s promise to become an industry consolidator.
“Obviously everything has a price but we suspect it would need to be a very substantial premium in cash to interest TWC shareholders.”
Instead, Greenfield thinks TWC should pursue Brighthouse Networks or think about “turning the tables on Charter if and when investors realise that Malone’s dreams of building Charter into a broadband behemoth evaporate”.
Charter’s US$10.4bn deal to buy Brighthouse has also collapsed as it was contingent on Comcast completing its takeover of TWC.
Moffett Nathanson analysts also suspect TWC may be reluctant to be acquired by Charter and is sure to argue that it is worth more now than back in 2013.
“First, valuations for the sector have risen and, and TWC’s performance has arguably begun to improve,” they said, noting that the market has appreciated 34% since news first broke of Charter’s interest in its larger rival in June 2013.
However, like Greenfield, they acknowledged that Charter’s shares are now trading significantly higher, meaning it can afford to pay more with less dilution.
In their view, Charter is likely to pursue a deal with Brighthouse, saying the companies have indicated an intention to negotiate in good faith.
“For Charter, Brighthouse represents not only scale but also incremental debt capacity that could help in Charter’s bid for TWC,” they said.
