Time Warner Cable shareholders may give incoming CEO Rob Marcus thumbs up to reject a $62 billion offer for the company, reports Bloomberg. Reason? The stock price keeps going up—36% so far this year. There are huge savings and efficiencies from consolidation at stake for an acquiring company such as Charter Communications or Comcast.
Comcast just named a new head of corporate development and strategy in Alexander Evans amid speculation that major MSOs in merger talks. He hails from Providence Equity Partners, where he led the firm’s New York office and was global co-head of the communications sector. Comcast has tapped JPMorgan for advice as it evaluates a potential bid for the company as well.
Comcast could be interested in owning the cable assets of New York, Los Angeles, or both. Comcast owns assets in California, as well as in the Eastern U.S. Comcast could do a systems swap with Charter, providing contiguously placed markets that would be easier to service.
Charter backer John Malone is currently preparing a takeover offer of about $135 a share that could come in Q1. Malone’s Liberty Media is Charter’s largest shareholder. While Marcus, who becomes CEO next month, said he’s willing to sell the company, TWC wants an offer of more than $150 a share, said the story. The company could fetch as much as $162 a share in a sale—today.
Time Warner Cable’s shareholders aren’t pressing the company to engage with Charter or to run a formal sales process just yet, said the story. They want to see how high the company’s value can get.
“We’re extremely well positioned to generate significant value and see strong growth for years to come,” Bobby Amirshahi, a Time Warner Cable spokesman, told Bloomberg.
“Analysts estimate Time Warner Cable’s net income will climb to $1.9 billion this year, up 77%since 2009. Time Warner Cable’s Internet subscribers are up 29% since its spinoff, and Internet customers may top video customers for the first time in the company’s history this quarter. Time Warner Cable had 11.6 million TV subscribers and 11.5 million broadband customers at the end of the third quarter,” said the story.
Time Warner Cable’s board will only consider selling at a price that — including debt — is at least 8 times earnings before interest, taxes, depreciation and amortization, or about $150 to $160 a share, sources told Bloomberg, pointing to two recent deals in which sellers fetched that multiple.
“Time Warner Cable is in a very strong bargaining position,” said Paul Sweeney, an analyst at Bloomberg Industries. “There is no reason for them to accept anything less than exactly what they want.”
When Charter agreed to pay $1.63 billion for Cablevision Systems Corp.’s Optimum West, a regional provider once called Bresnan Broadband Holdings LLC, it paid about 8 times expected EBITDA, data from Bloomberg Industries show. In its $3 billion purchase of Insight Communications Co., announced in 2011, Time Warner Cable paid about 8.6 times EBITDA.
Revenue from business services has jumped to $1.9 billion from $916 million in the last four years. Sales should double again in the next four or five years, Marcus, the incoming CEO said during the company’s Q3 call.
However, it’s not all rosy for TWC, which has had 18 consecutive quarters of TV customer defections. The company has lost more TV subscribers in the past two years than Comcast despite having almost 10 million fewer. TWC lost 304,000 video subscribers last quarter, the largest quarterly decline in TV customers ever recorded by a U.S. cable company, according to data compiled by Bloomberg.
Ultimately, the strength of Time Warner Cable’s other businesses, as well as the potential upside of broadband and business services, is what’s really encouraging Malone’s urge to consolidate, Chris Marangi, a money manager at Gamco Investors, told Bloomberg. “The difference in fundamental performance in any of the cable companies is not all that large. It goes in cycles and varies by competitive markets. Time Warner Cable is not a broken business.”
RBR-TVBR observation: Comcast is still waiting to see how TWC reacts to Charter’s bid, then it would know better what number to offer. As well, TWC and Charter could do a deal and then look at accepting other offers, likely (of course) from Comcast. On the other hand, we may end up seeing a bidding war—all good for TWC stakeholders and a prime example of how Malone’s involvement in a takeover seems to always drive value.
