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Charter, whose backers include John Malone, appeals to shareholders of larger cable company with takeover bid

Charter Communications has gone public with an offer to acquire Time Warner Cable in a deal that would be worth more than $61 billion — an offer the bigger operator called “grossly inadequate.”

Charter, having failed to sway TW Cable’s board with previous offers, is now appealing to the MSO’s shareholders with a bid that would reshape the U.S. cable biz.

In an announcement Monday, Charter said it “has made repeated overtures” to Time Warner Cable for more than six months. “Until December, Time Warner Cable chose not to engage or find out more,” said Charter, the fourth-biggest American cable operator, whose backers include media mogul John Malone.

Charter CEO Tom Rutledge said in an interview with Bloomberg that the operator sent a letter Monday to Time Warner Cable CEO Rob Marcus detailing the offer for $132.50 per share, or $61.3 billion. The price tag would include the assumption of Time Warner Cable’s debt; excluding that the deal would be worth about $37 billion. Charter said Goldman Sachs, BofA Merrill Lynch, Credit Suisse and Deutsche Bank Securities are financial advisers to Charter, and are leading the financing for the transaction.

The latest offer from Charter is comprised of $83 per share in cash and $49.50 per share in Charter stock. Charter had previously offered cash and stock “nominally valued” at approximately $114 in June and approximately $127 in October, according to Time Warner Cable.

Time Warner Cable’s Marcus said in a statement: “Charter’s latest proposal is a non-starter… Indeed, our high-quality assets, unique scale, synergy potential, growth opportunities and strong financial position should command a premium valuation compared to precedent transactions, not the discount offered by Charter.”

Charter’s bid “substantially undervalues TWC,” Marcus said, adding that Time Warner Cable’s board “is open to a transaction with Charter at a price of $160 per TWC share, consisting of $100 in cash and $60 per share of Charter common stock,” subject to certain conditions.

According to Charter, Time Warner Cable management rejected its bids in June and October of 2013. “Because Time Warner Cable’s stock has run up on widespread shareholder endorsement of a deal to the point where the premium is already reflected in the share price, Time Warner Cable’s response led Charter to determine there is no genuine intent from Time Warner Cable’s management and board of directors to engage in a merger agreement, and that it is prudent to bring the matter to shareholders directly,” Charter said in its announcement.

Shares of Time Warner Cable closed at $132.40 per share on Monday. In after-hours trading, following Charter’s announcement, TW Cable’s stock was up 1%, to $133.70 per share.

Malone, whose Liberty Media took a 27% stake in Charter last spring, has been vocal about the need for cable operators to consolidate to gain scale. Charter and Time Warner Cable combined would have had about 15.6 million subscribers across the U.S. as of the third quarter of last year — bigger than Dish Network, which has about 14 million subs.

Rutledge, in the letter to TW Cable’s Marcus that Charter made public, said the new combined company, “through potential future swaps and divestitures with other industry participants, can help rationalize the geographic holdings of the industry into more efficient entities capable of providing better services and products into a very competitive marketplace, thus generating higher returns for the combined company and the industry at large.”

Separately, Comcast has been investigating the possibility of acquiring all or part of Time Warner Cable, industry sources have confirmed.

Earlier this month, Liberty Media unveiled a complicated stock transaction under which it would buy the remaining 48% of Sirius XM Satellite Radio that it does not own, which was seen as prelude to a Charter bid for Time Warner Cable. The Sirius deal will give Liberty Media a “more rational capital” structure and allow it to access the satellite-radio operator’s cash flows, Liberty Media CEO Greg Maffei said at an investment conference last week.

Time Warner Cable had 11.41 million video subscribers at the end of September 2013, dropping a record 306,000 in the quarter in part because of contract fight with CBS that led to a monthlong blackout. Charter had 4.18 million video customers at the end of Q3, losing a net 27,000 for the period.

Charter said Goldman Sachs and LionTree Advisors are lead financial advisers in connection with the bid for Time Warner Cable. In addition, Guggenheim Securities is also a financial advisor to Charter. The law firms Wachtell, Lipton, Rosen & Katz and Kirkland & Ellis LLP are representing Charter.

For TW Cable, Morgan Stanley, Allen & Co. and Citigroup are serving as financial advisors and Paul, Weiss, Rifkind, Wharton & Garrison LLP is legal counsel.

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