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Charter Pitches Bid to TWC Shareholders

Stocks in this article: CHTR TWC CMCSA LMCA

NEW YORK (The Deal) -- Charter Communications (CHTR) CEO Tom Rutledge pitched his company's $61 billion offer for Time Warner Cable (TWC) directly to the target's shareholders, in a Tuesday, Jan. 14, conference call.

Rutledge and other executives expressed frustration over Time Warner Cable's reluctance to engage in talks, while also trashing the target's service quality, customer turnover and reputation in the marketplace.

"Before we take this process to the next step or walk away," Rutledge explained, the suitor decided to appeal to Time Warner Cable shareholders.

Charter executives urged Time Warner Cable investors to push their board to engage in talks, but also tried to temper expectations for a major bump in the price. The company's $132.50 per share bid reflects a negligible premium to recent trades. Time Warner Cable closed at $132.40 on Monday, before Charter announced the offer.

Time Warner Cable called the offer "grossly inadequate" and said it would be open to talking about a bid at $160 per share.

Charter CFO Chris Winfrey said Time Warner Cable's asking price is "well above what any rational market player" would expect and "far beyond" what Charter would pay.

Winfrey noted that Time Warner Cable's stock had risen 38% over roughly six months in anticipation of a bid from Charter.

Charter's offer includes $82.54 in cash and $49.96 in stock. Time Warner Cable would receive cash to cover the downside risk to the deal, and would have 45% of the equity in the post-merger company.

Shareholders of Charter needed a return that reflects the risk of turning around Time Warner Cable, he said.

"Since June, Time Warner Cable stock has traded higher, almost exclusively on rumors of a potential transaction," Winfrey said of the target's currency.

It may be true that merger speculation has boosted Time Warner Cable shares. On Tuesday, shares closed at $136 and climbed in after-hours trading.

Stifel, Nicolaus analyst Chris King said that the market assumes a final price of $145 to $150 per share.

"It's clear that the market doesn't expect the current offer to work," he said."The question is does Charter want to go to $150 or $160, and if not does somebody else come forward or does a consortium of cable companies come forward to make a joint bid."

If Comcast  (CMCSA) were to get involved and Time Warner Cable were carved up, King suggested, the deal would receive greater scrutiny from the Federal Communications Commission and the U.S. Department of Justice.

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