Charter Communications [NASDAQ:CHTR] today announced that they had put in a public bid to ‘merge’ with Time Warner Cable [NASDAQ:TWC] to the tune of $61 billion which breaks down to $37 billion ($132.50 per share) + Debt. The Time Warner Cable board of directors had expressed according to CNBC that the offer simply wasn’t enough and that Charter Communications had come to them with an offer in late December that also wasn’t enough. They expressed that a purchase price of $160 a share was what TWC could agree to, which would be about a premum of $30 over the share’s price. This figure would come out to a purchase price of $45 billion, or a final price including debt of $70 billion.
Even though this price seems very high, Time Warner’s current share price has stayed pretty steadily at around $130 and it seems as though Charter’s offer simply isn’t attractive enough to give investors or the board a reason to agree. The simple fact that the stock closed almost at the exact purchase price of the stock clearly means that many investors don’t really feel that this offer is good enough. Sure, TWC’s stock jumped a few percent in after hours trading, but this deal doesn’t sound like its going to happen from the commentary being spread by Charter’s own negotiators to publications like Reuters.
In the end, nobody really benefits from Charter Communications absorbing Time Warner Cable, especially when you consider how few ISPs there are in the country and how few cable providers there are as well. The fact that these companies have been discussing a merger for what has been rumored to be the past 6 months is not surprising, but still all the more worrying. Most customers of Time Warner Cable aren’t happy customers and I don’t really know if Time Warner Cable is in the position to be turning down any offers, however, their profitability remains strong and their investors clearly believe that they are worth more than what Charter is giving them, which is effectively what they are worth right now.
What’s more bizarre about this offer is that Time Warner Cable is about 3 times bigger than Charter Communications by size in terms of revenue and market cap. Sure, both companies have very similar share prices, but I simply don’t understand how Charter Communications can convince a significantly larger player in the industry to agree to merge for essentially no price premium over what they’re worth right now. Not to mention all of the anti-competitive and anti-trust hurdles they’d have to go over before such a deal would ever be approved.