Charter Going Public with TWC Offers Could Spark More Bids, Attorneys Say
A Charter Communications buy of Time Warner Cable would likely clear regulatory hurdles more easily than a Comcast buy, but TWC’s initial rejection of the Charter offer (CD Jan 15 p12) could spark a competing bid from Comcast or another company, said several cable attorneys in interviews Tuesday. A Comcast deal to buy TWC would bring more political and regulatory scrutiny and stir up issues about vertical integration that wouldn’t be as pronounced if Charter is the buyer, said Garvey Schubert cable attorney Bruce Beckner. “It’s a much tougher sell.”
By rejecting Charter’s offer of $132.50 a share as a “non-starter” and saying a price of $160 a share would be acceptable, Charter is asking for competing bidders such as Comcast to enter the fray, said Fletcher Heald cable and transactional attorney Thomas Dougherty. “If you have one bidder on a house, the sale price is generally lower than if you have two.” By going public with its offer, Charter has turned on the pressure on other prospective buyers to act quickly, several cable attorneys said. “If I'm sitting there in [Comcast headquarters] in Philadelphia, I know the process has started,” said Dougherty.
A Comcast buy of TWC would likely run into more regulatory hurdles because of Comcast’s size and it’s ownership of programmer NBCU, the attorneys said. The conditions of Comcast’s purchase of control of NBCUniversal would also be in play, and the commission could use a deal with TWC as an excuse to extend those conditions, industry observers have said (CD Dec 2 p3). Charter’s much smaller size and relatively recent brush with bankruptcy would give weight to arguments that it doesn’t have the market power to merit regulatory intervention, said Dougherty. The risk of regulatory barriers to a deal “is much lower” if Charter is the buyer, said BakerHostetler cable attorney Gary Lutzker.
Though Charter’s public announcement of its history of rejected offers to buy Time Warner Cable was framed as an attempt to get TWC’s shareholders to pressure the board, several cable attorneys said it’s also a negotiation technique that could lead TWC’s board to accept an offer from Charter. It’s “very difficult” for shareholders to force a company’s board to accept an offer the board members don’t want, said Dougherty. Though shareholders could use litigation to try to compel the board to accept a purchase offer, that process would likely take a long time, he said. Instead, the offer price is likely to change significantly as the “dance” of negotiation continues, Dougherty said. “Nobody ever starts with their best offer.”
In releases and SEC filings Tuesday, Charter said its offer for Time Warner Cable included a 38 percent premium on TWC’s stock price and 45 percent ownership in the new company for TWC stockholders. That offer was grossly inadequate” said a TWC release. Charter’s offer “substantially undervalues” Time Warner Cable, and because so much of the purchase price is 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,” said TWC CEO Rob Marcus in the release. Charter said its plan to run TWC would increase the company’s value by converting analog channels to digital, increasing the number of HD channels, introducing minimum Internet speeds of 30 Mbps, and removing “nickel and dime” fees. The combination of Charter and TWC would have a good chance of fighting “the headwind of programming cost growth” and increase competitiveness of the cable industry,” said Charter CEO Tom Rutledge in a conference call Tuesday.