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 Charter's top executives slammed Time Warner Cable for having the
industry's lowest customer satisfaction and "negative momentum."
Charter argues that Time Warner Cable is better off in its hands
because its management can spearhead a turnaround of its larger
rival.
Executives from the No. 4 cable operator made these comments on a
conference call a day after it launched a bid for Time Warner Cable
at $132.50 per share, consisting of around $83 per share in cash and
its own stock. The deal, valued at $37.3 billion, was rejected by
Time Warner Cable's board for being "grossly inadequate."
Charter has been trying for six months to strike a deal to buy Time
Warner Cable and sway its shareholders after three of its offers
have been rebuffed.
While executives at Charter and its largest shareholder Liberty
Media Corp have said before that they could do a better job running
the No. 2 cable provider, they saved their harshest criticism to
date for Tuesday's call.
"This negative momentum isn't simply result of an operating plan
over the last year, it is the failed plan over the past half
decade," said Charter's Chief Operating Officer John Bickham.
While he argued that Time Warner Cable has fallen behind by not
investing enough in taking on competitors and shifting to digital
technology, Charter has also struggled in recent years. It emerged
from bankruptcy in 2009 and is in the midst of a turnaround under
new management.
SECOND TO LAST
While customers from all cable companies complain about their
service, Time Warner Cable is dead last in customer satisfaction
surveys in three of the country's four regions, according to J.D.
Power. In the fourth region, the West, it ranks seventh of nine
subscription TV providers surveyed.
Still, Charter does not fare much better and ranks second to last in
three of the four regions.
In response to Charter's comment, Time Warner Cable released a
statement saying, "We are confident in our standalone plan and we
are not going to let Charter steal the company."
It also noted that Charter itself had referred to Time Warner Cable
as "the biggest and best M&A option available."
Reuters and other outlets have previously reported that No. 1 cable
provider Comcast Corp was weighing a bid, but Charter Chief
Executive Officer Tom Rutledge added on the call that he is not
aware of any other bidder pursuing Time Warner Cable.
Charter released a presentation earlier in the day saying that it
expects annual synergies of $500 million and other benefits such as
tax savings from its proposed acquisition.
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Annual synergies from a deal would grow to $750 million from $500
million over time, Charter said. The combined company would have to
take on $20.5 billion in new debt, or $72.16 per share, which would
bring it to a leverage ratio of 4.8 times to five times.
The combined company may also have to do "swaps and divestitures" to
make the regions it serves more efficient, according to one of the
slides in the presentation. Some analysts have said that No. 1 cable
provider Comcast would be interested in some of Time Warner Cable's
markets such as New York, Los Angeles and Dallas.
"SLOW INTERNET SERVICES"
Charter also said it was aiming to secure committed bridge financing
of $3.5 billion and would have to pay $600 million in fees, interest
and expenses.
Charter explained in its 30-page presentation how it would
accelerate Time Warner Cable's customer and cash-flow growth,
increase its margins and roll out higher Internet speeds. Time
Warner Cable did not have an immediate response.
Charter executives alleged that Time Warner Cable had focused on
selling "sub-standard limited basic video packages and slow Internet
services."
Charter said it can use its tax assets, about $7.8 billion in loss
carry forwards to reduce a merged company's operating earnings and
tax payments.
These credits would transfer to the combined company, it said in its
presentation to investors, "and should do so without additional
restrictions, allowing NewCo to use Charter's loss carry forwards
against Charter's and TWC's combined taxable income."
It argued that Time Warner Cable share price would decline without a
deal. Time Warner Cable shares have risen from the $90s to the $130s
since takeover speculation began six months ago and were trading 3
percent higher on Tuesday at $136.29 per share.
"Absent a serious M&A alternative, TWC faces significant potential
share price downside," Charter said.
(Reporting by Liana B. Baker and Ronald
Grover in Los Angeles; editing by Leslie Adler, David Gregorio and
Lisa Shumaker)
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