It’s not over ’til it’s over: Charter Communications, after being outbid by Comcast’s $45 billion offer for Time Warner Cable, is encouraging TW Cable stockholders to vote against the planned union for multiple reasons.
Charter had made several offers to Time Warner Cable in conjunction with John Malone’s Liberty Media, which owns 27% of Charter. In a regulatory filing Friday, Charter signaled that it hasn’t given up the fight for TW Cable, arguing that the Comcast takeover carries higher regulatory risks, delays and “reduced and uncertain value.”
“By voting against the Merger Agreement Proposal, you will send a message that you want the management to represent your interest and maximize your investment,” Charter said in the preliminary proxy statement.
Time Warner Cable CEO Rob Marcus, who stands to reap a $79.8 million golden parachute after the Comcast deal goes through, has called the Comcast takeover a “dream combination” that will provide greater scale and speed up innovation. At an investor confab this month, Marcus said “relative to any other alternative, we felt this maximized value.”
The Charter campaign may not be a total lost cause. Time Warner Cable shares initially jumped 7%, to $144.02 per share, when the Comcast deal was announced Feb. 13. Since then, have since fallen lower than before the Comcast bid was announced.
Charter pointed out that the value of Comcast’s takeover offer also has declined. Initially the Comcast bid was worth $158.82 per TW Cable share at the time it was announced. But, based on the closing price of Comcast stock on March 27, it’s now worth $141.16 per TWC share. In contrast, the Time Warner Cable board specifically “demanded of Charter $160 per share, and publicly stated that they would not take a penny less than $160 and that the collar was a critical element,” according to Charter’s filing.
Charter claimed that Comcast-TW Cable carries a number of other risks. First, deal is “subject to a high degree of regulatory risk due to the unusual terms of the Merger Agreement,” Charter said, noting that the merged MSO would control nearly 40% of the U.S. broadband market and have around 33 million TV subscribers. While Comcast has said it is willing to divest 3 million video subs and make other concessions, its offer includes no regulatory breakup fee, “giving Comcast no incentive to seek solutions beyond these limited commitments,” according to Charter.
Charter also warned of significant delays in the Comcast-TW Cable proposed merger. Deal is not anticipated to close before the end of 2014, and “could drag on to the third quarter of 2015 — and then could still fail to close, given the regulatory risks,” Charter said.
In addition, Charter charged that TW Cable investors have no information to evaluate the potential spinoff or divestiture of the 3 million subscribers. Charter said the value of those assets “is likely to be discounted to some degree as a result of the compulsory separation from Comcast.” Comcast expects to achieve $1.5 billion in cost synergies by absorbing TW Cable, with 50% of that in the first year. But those savings would be reduced by the required divestitures, Charter argued.
Ultimately, Charter alleged that the TW Cable board failed to investigate alternatives to the Comcast proposal. “In particular, the TWC board simply refused to meaningfully engage with Charter regarding a potential business combination even after deciding to pursue a transaction with Comcast,” Charter said.