Charter to Meet With Time Warner Cable About Merger (Report)

AP Photo/Richard Drew
Charter CEO Tom Rutledge

The meeting is expected to take place late next week in the wake of the failed Comcast acquisition of TWC.

Charter Communications is declining to comment on a report Thursday that its CEO Thomas Rutledge will meet with Time Warner Cable CEO Rob Marcus next week to discuss a possible acquisition or merger.

According to a CNBC report, Rutledge called Marcus to arrange a meeting in the wake of the failed acquisition of Time Warner Cable by Comcast.

Charter had gone after TWC even before Comcast but lost out because the deal it offered was considered too highly leveraged (too much debt). Charter later became a related player in the attempted Comcast acquisition of TWC, and was to buy a number of cable systems, but that deal also died when Comcast gave up after the FCC and U.S. Department of Justice made it clear they would oppose the $46 billion deal.

The meeting is expected to take place next week after TWC reports first quarter earnings on Thursday morning. CNBC said they expect Charter to keep whatever is discussed secret for now.

In early 2014, Charter offered TWC a cash and stock deal that would value the company at $132.50 a share. Marcus, at the time, complained the valuation was too low and Charter’s debt (and leverage) were already too high. He countered asking for a $160 a share deal with $100 in cash and $60 in stock.

Then TWC did the deal with Comcast, which was an all stock acquisition but was seen as a better bet for TWC.

Charter is actually smaller than TWC, so it could be a case of a minnow swallowing a whale. The largest cable TV provider in the U.S. by subscribers is Comcast with 22.3 million subscribers.

The number two pay TV provider is DirecTV (20 million subs), followed by Dish (14 million) and then TWC  (11 million), AT&T (6 million), Verizon (5.6 million) and Charter (4.3 million).

Charter is smaller and highly leveraged, but it is also backed by billionaire John Malone, who was an early pioneer in cable TV and recently has returned to the sector with multiple investments. Malone has shown again and again an ability to raise money and to use the tax laws to achieve the best possible deal.

Analysts have speculated Charter could come back with a bid of $160 a share or as much as $190 a share for TWC, with as much as $110 of that in cash. To do such a deal Charter, based in St. Louis, would have to raise over $30 billion in additional financing.

If Charter doesn’t do the deal for TWC, the number two cable company’s options in terms of a buyer are seen as limited.

Warren Buffett’s Berkshire Hathaway is also an investor in Charter and might come in to help with financing.

Time Warner Cable declined comment on the report. 

Some analysts believe TWC will refuse a deal with Charter and then will do its own acquisition. Likely targets are Brighthouse Communications or Cablevision, which has had previous discussions about a combination with TWC.