This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Investors See Premium in Time Warner Cable Bundle

NEW YORK ( The Deal) -- After Time Warner Cable (TWC - Get Report) chairman and CEO Rob Marcus snubbed a $61 billion takeover from Charter Communications (CHTR - Get Report), investors on Tuesday appeared to agree that the cable operator is worth more than the $132.50 per share bid.

Share of Time Warner Cable edged above Charter's bid on Tuesday, gaining $3.67, or nearly 2.8%, to $136.07, suggesting that investors see the offer as a floor rather than a final price.

Charter Communications CEO Thomas Rutledge made his pitch in a call to analysts and investors after the close on Tuesday.

Gauging Time Warner Cable's value is difficult, due to anticipation that John Malone-backed Charter would bid for the New York cable operator.

Must Read: TSG Shops Beauty Brands in Hot Sector

While Charter may decide to increase its bid, it is also possible that Time Warner Cable has greater value if split up, akin to the 2006 deal in which Time Warner Cable and Comcast (CMCSA) divvied up Adelphia Communications for $17.6 billion.

Charter's offer includes $82.54 in cash and $49.96 in stock. The deal would value Time Warner Cable's stock at more than $37 billion and would include $23.9 billion in net debt.

The bid provides no real premium to Time Warner Cable's recent trading. The stock closed at $32.40 on Monday, before the announcement. The target's management called the bid "grossly undervalued" in its response. Time Warner Cable's board previously told Charter that it is open to a deal at $160 per share, with $100 of the compensation in cash and $60 in stock.

Charter countered that its offer marks a 38% premium to Time Ware Cable's share price in mid-2013.

BTIG analyst Richard Greenfield wrote Tuesday that Time Warner Cable should not be in a hurry to sell.

Greenfield put a $160 per share target on the stock in December, which comes to 7.4 times his projected 2015 Ebitda. In a Tuesday report, he suggested that marketing initiatives, political advertising spending and other actors should improve results in the coming years.

Buyers might be willing to pay more if they could add markets that complement their existing holdings, rather than purchase Time Warner Cable's systems in New York, the Carolinas, the Midwest, Southern California and Texas.

"While laying out all the potential acquisition scenarios spanning multiple companies and joint bids is far too complex," Greenfield wrote, "we believe the operational efficiencies and improved clustering of a [Time Warner Cable] acquisition/breakup should warrant value of at least $160."

Marci Ryvicker of Wells Fargo Securities suggested that Charter would go as high as $150 per share, and said it is more likely that Time Warner Cable is "sold in pieces."

Charter's offer comes as board nominees for Time Warner Cable are due. Barclays Capital analyst Kannan Venkateshwar noted in a report that director submissions are due between Jan. 15 and Feb. 15.

The window of opportunity, following months of fruitless talks, could have influenced Charter's timing.

"As a result, the company appears to be now preparing to nominate new board members to [Time Warner Cable]'s board in case it cannot reach a friendly deal with [Time Warner Cable]," Venkateshwar wrote.

Leverage could be an issue.

Moody's Investors Service estimated that the post-merger company could have more than $60 billion in debt, pushing its leverage from 3.3 times Ebitda at the end of the third quarter to more than 5 times Ebitda. The credit agency warned that it could downgrade Time Warner Cable.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CHTR $173.01 1.00%
TWC $180.14 1.10%
AAPL $126.36 0.75%
FB $87.47 2.00%
GOOG $521.46 0.18%

Markets

DOW 17,742.40 +122.89 0.70%
S&P 500 2,077.81 +14.70 0.71%
NASDAQ 5,020.8060 +33.9390 0.68%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs