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Charter makes offer valued at more than $60 billion for Time Warner Cable

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Charter Communications has made an offer valued at more than $60 billion for Time Warner Cable, a move that could spark a new round of consolidation in the telecommunications industry.

If Charter succeeds with its takeover attempt, it would be a marriage of two of the nation's -- and Southern California's -- biggest pay-TV and Internet providers. Combined, the two companies would have more than 15 million video customers in the United States.

The offer, which was made Monday, is for $132.50 a share. Of that, $83 is in cash and roughly $49.50 is in Charter stock. Charter is offering about 37.4 billion in cash and stock. Including debt, the value of the offer is roughly $61.3 billion. Time Warner Cable shareholders would end up owning about 45% of the proposed new company. Time Warner Cable shares closed Monday at $132.40.

Time Warner Cable said its board of directors has "unanimously rejected" what it described as a "grossly inadequate proposal from Charter Communications."

Charter has made no secret of its interest in acquiring Time Warner Cable and confirmed it had made previous offers for the last six months to no avail. It said it is going public now to try to get Time Warner Cable shareholders behind its effort.

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In a letter sent to Time Warner Cable by Charter Communications Chief Executive Tom Rutledge, he wrote that there is a "significant opportunity to put our companies together in a way that will create maximum, long-term value for shareholders and employees of both companies."

Time Warner Cable, which recently named Robert Marcus as its new CEO  succeeding Glenn Britt, who retired last year, has rebuffed the much smaller Charter's interest to date. Rutledge expressed frustration over that in his letter to Marcus.

"The information provided to date has been exclusively one-way, which further reinforces the point that there is no genuine interest from Time Warner Cable management and board of directors to engage on this opportunity," Rutledge wrote.

Charter's Rutledge went on to say the financing it needs for the transaction is "fully negotiated, and we can be in a position to sign commitment letters in a matter of days." 

In his statment responding to the Charter offer, Marcus said, the proposal was a "non-starter" that substantially under values Time Warner Cable. 

"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 Time Warner Cable shareholders could be substantially lower given the valuation, operational, and significant balance sheet risks embedded in Charter's stock," Marcus added.

Marcus said Time Warner Cable's 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.”

Time Warner Cable board member N.J. Nicholas also balked at the offer. In a statement, he said,the offer "doesn't come close to providing our shareholders with the kind of value and protections they should expected in a transaction" and instead would "transfer significant value from our shareholders to Charter shareholders, while dramatically increasing the risk profile for our shareholders."

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The offer by Charter could spark other cable operators to jump into the fray. Time Warner Cable serves regions including New York City that would be of particular interest to Philadelphia-based Comcast Corp., the nation's largest cable and Internet provider. Comcast declined to comment.

Charter counts among its shareholders Liberty Media, the entertainment giant whose chairman, John Malone, is considered the godfather of the modern day cable industry. Malone has made no secret of his desire to further shrink the number of cable and Internet providers serving the country.

Wunderlich Securities analyst Matthew Harrigan said the offer is a sign that "the industry is about to go into a period of enormous flux."

Harrigan believes that Charter's move could ultimately be successful because shareholders may decide that Time Warner Cable's management is not as strong as others in the industry.

"Charter may increase the price slightly, but probably not by much," Harrigan said, adding that Time Warner Cable's substantial subscriber losses in the last six months underscores the problems the cable company is contending with -- problems that won't be too easy to solve.

Time Warner Cable had a tough 2013, losing close to 1 million pay-TV subscribers. Many of those customers abandoned the cable operator after a protracted fight with CBS Corp., in which the most-watched broadcast network was not available to many Time Warner Cable customers for a month.

Last week's International Consumer Electronics Show in Las Vegas also illustrated the enormous challenges facing the industry. Samsung and other manufacturers rolled out enhanced features including 4G television sets. 

Time Warner Cable has not upgraded the speed and capacity of its network in recent years, putting the cable operator at a disadvantage to other operators such as Verizon FiOS, which has made substantial gains picking up customers in New York City.

"I don't think it is going to be easy, even for Charter to fix," Harrigan said.

Besides its cable systems, including those in Los Angeles and San Diego, Time Warner Cable owns two regional sports networks in Los Angeles and is preparing to launch a third next month. It also owns a piece of a sports channel in New York City and has an Ohio outlet as well.

Locally, Time Warner Cable agreed to pay $8.5 billion for the television rights to the Los Angeles Dodgers for 25 years starting this season. Its contract with the L.A. Lakers, which started last season, runs 20 years and is north of $3 billion; some have pegged its price tag at as much as $5 billion.

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Follow Joe Flint on Twitter @JBFlint.

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For the record this post was updated to include Time Warner Cable's response to the Charter offer.

Copyright © 2014, Los Angeles Times
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