Charter Calls TW Cable ‘Turnaround Project’

LOS ANGELES (AP) — Charter Communications executives labeled Time Warner Cable a “turnaround project” suffering from a failed strategy as they urged Time Warner Cable shareholders to prod management to begin talks with Charter on its buyout offer.

The criticism was leveled Tuesday after Charter revealed details of its proposed bid for Time Warner Cable for around $132.50 a share, or $38 billion. The offer would create the third-largest pay TV provider in the country with 16 million video customers.

Executives with Charter Communications Inc. (CHTR), which has 4.2 million video customers, argued that a deal is urgently needed because Time Warner Cable Inc. (TWC) is rapidly losing customers for key services such as video, voice and even Internet.

“This negative momentum isn’t simply the result of their operating plan over the last year. It is the failed plan over the past half-decade,” said Charter’s chief operating officer, John Bickham, in a conference call with analysts.

Time Warner Cable shot back, saying there was nothing in Charter’s presentation Tuesday that “changes the fact that its proposal is grossly inadequate.” Time Warner executives have said their company is worth $160 a share, while Charter says its rival’s hope for a better deal is “unrealistic.”

Charter says the offer it is contemplating — for $82.54 in cash and roughly $49.96 in Charter stock for every Time Warner Cable share — is 38 percent higher than where its target’s stock was trading when it first made a bid in June.

Charter’s online presentation had more details on its proposal, including that it expects $750 million in annual operating cost savings. It also said if it projected its own revenue growth rate for the last 18 months onto Time Warner Cable’s results in 2015 and 2016, Time Warner Cable’s 2016 revenue would be $725 million higher than current forecasts.

Charter says it would invest in converting Time Warner Cable’s channel offering to all-digital, which would free up bandwidth for faster Internet speeds; eliminate “nickel and dime” charges for things like modem rentals; and do away with inferior but cheaper Internet and TV packages that encourage people to downgrade service once promotional pricing offers end.

Vijay Jayant, an analyst with ISI Group, said such a formula has worked for Charter CEO Tom Rutledge in the past, including in his stint as chief operating officer at Cablevision Systems Corp. (CVC) from 2004 to 2011.

“The track record speaks for itself,” Jayant said.

Time Warner Cable has said that previous industry transactions have occurred at a value of 8 times earnings before interest, taxes, depreciation and amortization plus debt. It said Charter’s offer was at just 7 times.

Charter said that adjusted for the tax benefits of the deal, its offer values Time Warner Cable at 7.3 times EBITDA plus debt, above the 6.5 times average valuation of five recent deals.

Market participants believe a better offer is possible. New York-based Time Warner Cable Inc. shares finished up 2.7 percent at $136 on Tuesday. Shares in Charter, which is based in Stamford, Conn., rose 2.3 percent to close at $137.34.