Charter and Time Warner in $55bn tie up

August 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

When it comes to mergers, Time Warner Cable Inc has endured a difficult few years. The company’s amalgamation with AOL in 2000 has been described by many commentators as the worst deal in corporate history, and in recent years the company has had a number of other potential, unsuccessful suitors.

Time Warner has proven particularly attractive to would be acquirers because of its huge number of subscribers – more than 11 million – and its significant presence in key US markets, including New York and Los Angeles. Yet proposed deals for the firm have consistently failed to materialise. Deals have fallen through, often as a result of government or regulatory pressure.

Yet despite the history of failure surrounding deals, Charter Communications Inc has not been deterred from pursuing a deal for the cable giant – a transaction which has been mooted for some time. In late May, following a protracted and difficult courtship, the two firms announced that they had agreed a $55bn merger.

The deal, expected to close by the end of 2015, will see Charter pay $195.71 per Time Warner share, 14 percent more than the company was priced at when markets closed on Friday 23 June, two days before the deal was announced. The transaction will also include the assumption of existing Time Warner debt. The agreed price represents considerably more value for Time Warner’s shareholders than the company’s previously proposed sale to Comcast, which fell through earlier this year. The Comcast deal would have seen Time Warner’s shareholders receive $158.82 per share in a deal worth $45.2bn.

The Charter-Time Warner deal is subject to the approval of the companies’ shareholders, as well as regulatory review, and other customary conditions. Bright House Networks, another cable company, will also be rolled into the deal, the companies noted in a statement. Once the acquisition of Time Warner has been completed, the combined Charter-Time Warner-Bright House organisation will serve 23.9 million customers across 41 separate states.

“With today’s announcement, we have delivered on our commitment to maximising shareholder value,” said Robert D. Marcus, chairman and chief executive of Time Warner Cable. “This agreement recognises the unique value of Time Warner Cable, and brings together three great companies that share a common philosophy of strong operations, great products, robust network investment and putting customers first. This combination will only accelerate the great operating momentum we’ve seen over the last year and provide enormous opportunities for our 55,000 dedicated employees. We remain wholly committed to bringing the very best experience to our residential and business customers coast to coast”.

The mega-merger comes amid a period of significant change in the media and telecommunications industries. Traditional cable networks are under considerable pressure from new entrants to the space. The proliferation of high speed internet connections and so-called ‘over the top’ streaming networks such as Netflix, Amazon Prime and HBO are changing the viewing habits of consumers, not only in the US but globally. Indeed, traditional cable companies are under attack in many key markets, and as such, are moving into other spaces. Viewed in this context, the merger is a significant one. The acquisition of Time Warner Cable will considerably strengthen Charter’s position in the broadband industry.

“The teams at Charter, Time Warner Cable and Bright House Networks are filled with the innovators of our industry. Representatives of each of these companies have invented some of the most revolutionary communications products ever created; innovations like video on demand, VOIP phone service, remote storage DVR, cable TV through an app, downloadable security and the first backward-compatible, cloud-based user interface. That spirit of innovation will live on, and it will create real benefits and great long-term value for the customers, shareholders and employees of all three companies,” said Tom Rutledge, president and chief executive of Charter.

Richard Summerfield