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Charter blasts Time Warner Cable while making case to buy it

Charter Communications executives think Time Warner Cable is a troubled asset with bad leadership and horrible customer service and is too cheap to upgrade its Internet and video operations to better serve its subscribers.

And Charter is eager to make a deal valued at more than $60 billion to buy it.

In a Tuesday conference call with analysts, Charter Communications executives spent the better part of an hour shredding Time Warner Cable and its management team.

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Time Warner Cable has "failed to be a competitive company," Charter Chief Operating Officer John Bickham told analysts, adding that it has substandard video packages and slow Internet service.

"This strategy results in disconnects and downgrades," Bickham said. He also said the company has "fallen into the trap of nickel and dime charges to its customers for things like modem rentals and pass-through fees." 

The call was part of Charter's effort to make its case that it can better run the company and that its bid -- valued at $132.50 a share and rejected by Time Warner Cable -- is fair. Under the terms of the deal, Charter is offering about $37 billion in cash and would assume roughly $24 billion in debt.

Charter first approached Time Warner Cable about a deal in June and made two offers prior to the current one that it went public with Monday. Time Warner Cable has more than 15 million video and Internet customers including several million in New York City and Southern California. The much smaller Charter has almost half as many video and Internet subscribers.

Time Warner Cable, which has indicated it would consider an offer of $160 a share, said there was nothing in Charter's presentation that "changes the fact that its proposal is grossly inadequate."

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Asked if Charter would consider raising its offer, Chief Executive Tom Rutledge said, "We have that option, but at the moment this is our plan."

Investors and analysts seem to believe that Time Warner Cable will get sold, although the deal structure probably will not be what Charter has proposed.  

The two major questions are whether any other cable companies -- such as Comcast, Cox or Cablevision -- will materialize to bid for Time Warner Cable. And, if not, whether $132.50 a share is the appropriate valuation for the company.

Charter's Rutledge said he was unaware of any other bidder and that the company wasn’t looking to partner with anyone for a purchase of Time Warner Cable.

"Our bid stands alone, he said. "We're fully financed and ready to go."

Rutledge added that Liberty Media, which owns 27% of Charter and is headed by cable pioneer John Malone, has indicated a willingness to put up additional capital for Time Warner Cable.

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Time Warner Cable’s shares are up more than 40% since June when Charter’s interest in it first surfaced, so Charter believes that the market already has built in any premium to the stock. Time Warner Cable stock edged up $3.60 to $136 on Tuesday, the first day of trading following Charter’s Monday offer. Charter’s shares were up $3.12 to $137.34 in Tuesday trading.

“Charter rightly claims that a takeover premium is already built into the stock price,” Dave Novosel, analyst with the firm Gimme Credit, wrote in a report. “The stock is up roughly 40% since last summer, and given the steady loss of video subscribers at Time Warner Cable, the price is not up because of its financial performance.”

Analysts, including Novosel, noted weaknesses in Time Warner Cable’s underlying business fundamentals. Time Warner Cable has lost nearly 1 million subscribers in the last year, a much more dramatic decline than other pay TV operators have experienced.

Wells Fargo Securities analyst Marci Ryvicker said she thinks Charter may raise its bid but not to where Time Warner Cable wants it.

“Our gut tells us a standalone price of $150 a share is as high as Charter would go,” she wrote in a Tuesday report.

ALSO:

Charter makes offer for Time Warner Cable

DirecTV stops carrying Weather Channel after contract dispute

Buyer beware: Time Warner Cable comes with expensive sports deals

Follow Joe Flint on Twitter @JBFlint.

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