Charter CEO Says Time Warner Cable Savings Will Exceed Target

Tom Rutledge-Getty-H 2016
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CEO Tom Rutledge also talks about carriage fee-related lawsuits brought against the now second-largest U.S. cable operator following the deal, and management signals it could make further accretive acquisitions.

Charter Communications expects higher than previously outlined cost savings from two big recent acquisitions, chairman and CEO Tom Rutledge said on the company's second-quarter earnings conference call on Tuesday. He didn't immediately detail the new targets.

The cable giant recently closed the $55 billion acquisition of Time Warner Cable and the $10.4 billion takeover of Bright House that made it the second-biggest U.S. cable company behind Comcast and the third-largest pay TV operator, behind AT&T/DirecTV and Comcast.

Charter previously predicted $800 million in TWC annualized programming and overhead elimination synergies by the end of year three after the deal closes, which doesn't include revenue and other operating benefits. Charter CFO Christopher Winfrey on Tuesday's earnings call also mentioned that the TWC figure will exceed initial expectations, again without detailing a new estimate.

He said though that by the end of the first year, annual deal savings will hit more than $600 million, compared with a previous estimate of $400 million-$500 million.

The company has said that $400 million of the $800 million TWC figure will come from lower programming costs as Charter cable systems start using the TWC rates. Lawsuits from programmers, namely Univision and Fox News, have followed though. Both legal actions pose the question of whether Charter can hold up the TWC agreements, which are more advantageous, as governing carriage on its cable systems.

Asked about the lawsuits, Rutledge said Tuesday that "the nature of programming relationships hasn't fundamentally changed, and [it] is still a contentious contractual environment," but added that Charter has generally "good relationships with our programmers." He also argued that "the litigation is part of the negotiation process in general." He said that overall, the reaction from network groups has been about as expected so far.

Rutledge on Tuesday also lauded Time Warner Cable as having come under Charter's ownership in stronger shape and said Charter was pleased with how the management teams at TWC and Bright House led the transition before the deal close. He also said the two companies are "in better shape" than the legacy Charter operations were four years ago when he took over management.

Charter has focused on integrating the three companies since the deal close. “So far we haven’t seen anything that precludes us from being successful,” Rutledge said.

Management said it expects the management teams' integration process, including possible further severance, to continue in the next three years or so.

Winfrey said the company's priorities for use of available cash are investments in its business, followed by possible further "accretive M&A."

Charter earlier on Tuesday reported that it lost 152,000 residential pay TV subscribers in the second quarter, compared with 170,000 in the year-ago period assuming the TWC and Bright House deals had been in place then. The company said the result was "driven by better year-over-year performance at Legacy Charter and Legacy Bright House, partially offset by higher video losses at Legacy TWC."

John Malone's Liberty Broadband owns a big stake in Charter. On Tuesday's call, Rutledge said the deals will improve packaging and pricing, deepen wireless offerings and allow more innovation over time.