By Shalini Ramachandran
It didn't take long for Time Warner Cable Inc. to find itself
back in play.
Charter Communications Inc. is laying the groundwork for a
potential bid for the New York-based cable operator, according to
people familiar with the matter, after Comcast Corp.'s deal to buy
the company unraveled.
Comcast and Time Warner Cable on Friday announced they had
dropped plans for a $45.2 billion merger that would have united the
nation's two largest cable companies.
Charter, which is backed by cable pioneer John Malone's Liberty
Broadband Corp., could approach Time Warner Cable with a proposal
soon, the people said.
Mr. Malone and many analysts believe the U.S. cable industry
would benefit from further consolidation, which could help
companies deal with the stagnating pay TV business and make
investments to capitalize on growth in broadband as streaming video
takes off. Joining Charter and Time Warner Cable would create
another industry heavyweight, with 15.6 million video subscribers
and 16.4 million broadband customers, compared to 21.7 million and
20.7 million for Comcast, respectively.
Time Warner Cable rejected a bid from Charter before accepting a
Comcast offer last year, and many of the company's concerns about a
potential combination remain, a person familiar with the situation
said.
Time Warner Cable is worried about the level of debt the
combined company would have, since Charter would likely raise a
large amount to finance a deal, the person said. And Time Warner
Cable believes Charter's shares are overvalued, so it will be
hesitant to accept a large amount of stock in any transaction. A
Charter offer with a high proportion of cash in the mix would be
better received by Time Warner Cable, the person said.
Indeed, Time Warner Cable believes it is in position to be an
acquirer, though Charter might not be its target, because its stock
is viewed as expensive, the person said.
In January 2014, Charter had proposed a takeover of Time Warner
Cable at $132.50 a share in cash and stock. Time Warner Cable's
board rejected that offer, demanding $160 a share with at least
$100 of that in cash. Then Comcast swooped in with a cash-and-stock
deal that valued Time Warner Cable at about $158.82 when it was
announced.
People close to Charter acknowledge that they will have to come
up with a better offer than what they presented to Time Warner
Cable more than a year ago, given that Time Warner Cable's
operations have improved and both companies' stock prices have
climbed. Since the Comcast-Time Warner Cable merger was announced,
the value of Charter's stock has climbed more than 40%. Time Warner
Cable's shares have also climbed and jumped 4% on Friday to $155
after The Wall Street Journal reported Charter's interest.
Relations between the companies were strained when Charter went
hostile last time around after its initial overtures were rejected,
taking its offer directly to TWC shareholders. Charter is unlikely
to make a hostile bid this time and wants to keep talks friendly,
one of the people familiar with the matter said.
In an interview, Time Warner Cable Chief Executive Rob Marcus
wouldn't comment on any possible deals Time Warner Cable might
pursue, but said the company has the flexibility to make necessary
moves.
"What I've said repeatedly is that we are in the business of
maximizing shareholder value, and we fully intend to fulfill that
obligation," Mr. Marcus said. "That could be achieved by running
the business on a stand-alone basis, allocating capital smartly,
managing our balance sheet or engaging in M&A as an acquirer or
as a seller."
Mr. Marcus declined to say what price Time Warner Cable would
ask for in any approach from Charter.
The unraveling this week of the Comcast deal also reverberated
for Charter, scrambling two deals it had planned. Comcast had a
deal with Charter to sell or spin off about four million
subscribers that Comcast and Time Warner Cable planned to divest in
their combination. Plus, Charter had agreed just last month to buy
cable operator Bright House Networks LLC for $10 billion. That
transaction was contingent on the Comcast-Time Warner Cable deal
closing.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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