They have unanimously rejected a third “grossly inadequate proposal” from Charter Communications to acquire TWC. The proposal was described in a letter received from Charter as being in the “low $130s.” Based on an interview with Charter CEO, Tom Rutledge, Bloomberg reported that the offer was for $132.50, consisting of $83.00 in cash and $49.50 in Charter stock. Charter had previously offered cash and stock nominally valued at approximately $114 in June and approximately $127 in October.
Said Rob Marcus, Time Warner Cable Chairman and CEO: “Charter’s latest proposal is a non-starter. First and foremost, it substantially undervalues TWC and would represent an EBITDA multiple of approximately 7X, well below past transactions in the cable sector. Indeed, our high-quality assets, unique scale, synergy potential, growth opportunities and strong financial position should command a premium valuation compared to precedent transactions, not the discount offered by Charter. Not only is the nominal valuation far too low, but because a significant portion of the purchase price would be in Charter stock, the actual value delivered to TWC shareholders could be substantially lower given the valuation, operational, and significant balance sheet risks embedded in Charter’s stock.”
TWC is a one-of-a-kind company. We are the only large pure-play, non-family controlled cable operator in the United States, with 15 million customers in some of the country’s best markets. We have an incredibly robust network, having invested almost $15 billion in CapEx since our separation from Time Warner Inc. in 2009. We are continually enhancing the capacity of that network to support future growth and expansion of our product offerings, adding significantly faster data speeds and advanced multi-platform video offerings. In short, we’re in a great business and confident we have the right assets, the right people and the right strategic plan to deliver great experiences to our customers and create significant value for our shareholders. Our shareholders deserve to realize that value and benefit from the unique position of the company.”
Marcus continued, “Our job above all is to act in the best interests of our shareholders. We are not seeking to sell the company, but consistent with what we have always said about maximizing shareholder value, on December 27 we made it clear to Charter that our Board is open to a transaction with Charter at a price of $160 per TWC share, consisting of $100 in cash and $60 per share of Charter common stock, subject to a symmetrical 20 percent collar to protect our shareholders on the value of Charter shares, which currently trade at a historically high multiple. The $160 price represents a forward multiple of only approximately 8X. We gave Charter our bottom line, but rather than pursuing this path, Charter has chosen to go public with its third low-ball offer trying to pressure TWC’s Board into selling the Company at a grossly inadequate price.”
N.J. Nicholas, Jr., the independent lead director of the TWC Board, added, “The Board takes very seriously its obligation to maximize shareholder value and, on that basis, we gave Charter our bottom line. The Charter proposal doesn’t come close to providing our shareholders with the kind of value and protections they should expect in a transaction. In fact, it would transfer significant value from our shareholders to Charter shareholders, while dramatically increasing the risk profile for our shareholders. As such, it is wholly inconsistent with the interests of our investors and our responsibilities as a Board.”
Morgan Stanley, Allen & Company and Citigroup are serving as financial advisors to Time Warner Cable, and Paul, Weiss, Rifkind, Wharton & Garrison LLP is legal counsel.
RBR-TVBR observation: Will Comcast join in the bidding? Probably. The company just named a new head of corporate development and strategy in Alexander Evans. He hails from Equity Partners, as global co-head of the communications sector. Comcast has tapped JPMorgan for advice as it evaluates a potential bid for the company as well. They could also split the company with Charter, adding some regional markets and Comcast-owned cable networks in the same swipe. Whichever company or companies eventually acquire TWC, they’ll be buying its subscriber list, so to speak. Wherever they overlap, there will be massive layoffs from consolidation, as par for the course. And yes, that immediately accrues to a better bottom line for shareholders.
Of course TWC rejected the bid. This is part of a long process to maximize shareholder value. But at least we know where the range is going to be for the next bid: Higher than $132.50 per share and lower than $160.00 per share.