Broadband Cable Association of Pennsylvania


November 22, 2013

Charter Communications Inc. is nearing an agreement with banks to borrow money for a bid for Time Warner Cable Inc., according to people familiar with the situation-a sign that the scrappy cable operator's effort to engineer a combination of the two companies may be moving into high gear. Charter has held talks with Bank of America Corp., Barclays PLC and Deutsche Bank AG about a multi-billion dollar debt package that would underpin an offer for Time Warner Cable, which has a market capitalization of nearly $35 billion, the people said. Another possible source of cash for a bid, according to people familiar with the matter: sovereign wealth funds and wealthy individuals. Arranging equity commitments from such parties could allow Charter to increase the cash component of the deal without taking on too much debt. It isn't clear which banks ultimately might participate in any debt package or how much Charter would get from lenders. There also is no guarantee a Charter bid for Time Warner Cable will ultimately materialize, and the timing of any such move is unclear.

A merger of Time Warner Cable and Charter could spark a fresh wave of consolidation in the cable-TV industry, which has been steadily losing television subscribers to satellite operators and phone companies and faces new threats from online video. Charter is backed in the effort by Liberty Media Corp. , its largest shareholder. Liberty Media Chairman John Malone, a pioneer of the cable industry who helped lead an earlier wave of mergers in the 1990s, has been the leading voice in the industry calling for consolidation. He and others close to him have said that cable consolidation would help the industry deal with rising programming costs, a growing cause of concern for pay-TV providers. And by holding down their costs, cable operators could be better able to convince consumers to stop "cutting the cord" and disconnecting from pay TV.

News of Charter's interest in Time Warner Cable first surfaced in June, after Liberty Media Chief Executive Greg Maffei met with Time Warner Cable CEO Glenn Britt and floated the idea of a combination, people familiar with the matter said at the time. Mr. Britt responded that Time Warner Cable wasn't interested in such a deal, one of the people said. Since then, Time Warner Cable executives have publicly made clear that they won't agree to any deal that doesn't adequately compensate the company's shareholders. For Charter, the difficulty in pulling off such a deal stems largely from its size; the company is much smaller than Time Warner Cable, with a market value of just $13 billion.

Founded in 1993, Charter, based in Stamford, Conn., is the fourth-largest cable operator in the U.S., with 4.2 million video customers as of September, compared with 11.4 million for Time Warner Cable, the second-biggest. Even so, several big Time Warner Cable investors have said they are frustrated with management. The company's operational performance in recent quarters has lagged behind that of peers including Comcast Corp. In the most recent quarter, for instance, the company lost subscribers in both television and Internet-access. While cable operators generally are losing TV subscribers, Internet-access has been an area of growth for most.

Charter and Liberty Media are putting pressure on Time Warner Cable at a time of transition in top management. Mr. Britt is retiring at the end of December, to be succeeded by his No. 2, Rob Marcus. Unlike Charter's CEO, Tom Rutledge, who rose through the operating side of the cable industry, Mr. Marcus primarily has financial and deal experience. Mr. Britt said on a conference call with analysts at the end of October that his thinking on mergers has been shaped by two big mergers of the past, Time Inc.'s merger with Warner Communications in 1990 and AOL's combination with Time Warner a decade later. Both, he said, "were very lopsided in favor of one set of shareholders." He added that "our job is to make money for our owners, and [in] M&A, we are open to deals that do exactly that."

Time Warner Cable stock now trades at around $121, and investors would be looking for a premium. The cash component also is crucial. Some Time Warner Cable investors have said they would want about $90 for the cash component of any deal-around the price where Time Warner Cable shares hovered before the possible deal came to light. At $90 a share, Charter would need to raise roughly $25 billion for the cash component. Barclays analysts in June estimated a Charter-Time Warner Cable combination could involve an incremental debt component of as much as $16 billion. Besides bank debt, Charter would be expected to use existing Liberty Media and Charter resources, including Charter shares-in addition to the possibility of raising equity from outsiders. Liberty Media would likely put cash into the deal to counteract dilution of its 27% stake in Charter from any Charter stock issued.

Liberty Media has recently raised $1.5 billion by selling new debt and a small portion of its stake in Sirius XM Radio. At an investor presentation in October, Mr. Malone said it was important for Liberty Media to keep its Charter interest at or above 25%, noting that "we would be prepared to make incremental investments to support what would otherwise be a diluting transaction." According to a person familiar with the matter, a number of funds and individuals, some of whom have dabbled in cable in the past, have expressed a willingness to invest in a combination of Charter and Time Warner Cable. It is possible Charter would ultimately decline to tap them, this person added. Any amount it raises in outside equity would be less than $10 billion, two of the people said. Wall Street Journal

Can't wait to get a look-see at Democratic candidates lined up to oppose Gov. Corbett next year? Well head out to Temple's Performing Arts Center (1837 N. Broad) on Saturday where five of the eight announced contenders are scheduled to offer thoughts on jobs, education, health-care and more. The event is billed as a forum on impacting Philadelphia working families. It's not a debate. That means no back and forth, but at least the chance to listen to who says what about how they'd lead the state. Gov. Corbett was invited, too. Sponsors say he's unable to attend. Confirmed participants are Congresswoman Allyson Schwartz, state Treasurer Rob McCord, former state Environmental Protection secretaries John Hanger and Katie McGinty and former state Revenue Secretary Tom Wolf. The forum is set from 4 p.m. to 6 p.m. Unclear whether the three other Democrats running - Allentown Mayor Ed Pawlowski, Lebanon County Commissioner Jo Ellen Litz, Cumberland County minister Max Myers - were invited or not. The event is sponsored by a bunch of unions and local community groups including AFSCME, Action United and SEIU. It's the first of what's likely to be many, many such encounters before the PA Democratic primary in May and the start of a long process to sort out who Democratic voters will choose to represent their party against Corbett next November.

State Rep. Dwight Evans has a book - Making Ideas Matter: My Life as a Policy Entrepreneur - being released today by University of Pennsylvania's Fels Institute of Government. The book, co-written with former Inquirer Harrisburg bureau chief William Ecenbarger, tracks Evans' life from a childhood in working-class North Philly to election as the powerful Democratic chairman of the House Appropriations Committee. The final chapter, "Politics is a Contact Sport," explores the "frustration" Evans felt in failed campaigns for governor, lieutenant governor and mayor. Evans recounts how political consultants complained that he spoke in "Legis-ease," a wonky language not well-suited for the sound bites of modern politics. Evans, who was ousted from his chairmanship by fellow Democrats in 2011, tells us he is still listening to people urging him to make a third bid for mayor. For now, he plans to tour the city, state and country to talk about his new book. All book proceeds will go to the Fels Institute. We told Evans the tour sounded like a fine stage from which to launch a campaign for a different public office, such as mayor. "What I want to be judged by is my ideas," Evans said, repeatedly deflecting questions about his political future. "Do they matter? Do they make a difference?" Philadelphia Daily News