Time Warner Cable Secures Fantastic Price for Shareholders
Unlike the Comcast deal, Charter’s bid for Time Warner Cable is likely to succeed, but valuations across the cable industry look stretched.
Time Warner Cable (TWC) has succeeded in extracting a fantastic price for its shareholders, far exceeding our expectations. Charter Communications (CHTR) has agreed to pay $100 per share in cash and 0.54 share of Charter stock for each TWC share, far greater than its final offer 16 months ago ($83 per share in cash plus 0.37 Charter share). We believe this transaction, including Charter's planned acquisition of Bright House, will face less regulatory scrutiny than the failed TWC/ Comcast (CMCSA) deal, and we think it is likely to succeed. We are increasing our TWC fair value estimate to $175 as a result. We continue to believe that cable valuations are stretched at present.
This transaction will build on the strengths that TWC and Charter possess as stand-alone firms. Both firms bring solid networks to the combined company, creating a cable footprint second in size only to Comcast. The new firm, including Bright House, will own networks passing 48 million homes and businesses (Comcast passes 55 million), claiming 17 million television and 19 million internet access customers (Comcast serves 22 million of each). The combined networks complement each other particularly well in Dallas and Los Angeles. TWC's heavy investment in sports rights in LA should benefit significantly. Increased scale should provide ample opportunities for cost savings, though we were surprised that management downplayed programming cost savings expected as part of this deal.
Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.