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Time Warner Cable CEO Defends Charter Bid Refusal

Stocks in this article: TWC CHTR LBTYA CMCSA

NEW YORK (The Deal) -- Time Warner Cable (TWC) CEO Robert Marcus divided the company's Thursday, Jan. 30, investor call between presenting fourth quarter earnings and defending its resistance to buyout overtures from Charter Communications (CHTR).

"We're in the business of maximizing shareholder value," Marcus said, regarding Time Warner Cable's rejection of a $132.50 per share cash and stock offer from Charter, backed by John Malone's Liberty Media (LBTYA)

With Time Warner Cable's shareholder meeting approaching and the prospect of Comcast  (CMCSA) agreeing to pick up some markets from Charter in a side deal, the pressure on the second-largest U.S. cable operator may grow more intense. Comcast's involvement, which is not confirmed, would increase the financial resources behind a bid and possibly increase calls for Time Warner Cable to engage more fully in talks.

Craig Moffett of MoffettNathanson LLC described Time Warner Cable's position as a "last stand" in a Thursday note.

Marcus told investors that Time Warner Cable's numbers suffered last year because of the timing of increased promotional pricing, among other matters.

The CEO predicted customer losses would decrease as the company embarks on a three-year plan.

Time Warner Cable touted the rollout of an upgraded service dubbed TWC Max, which will have broadband speeds up to 300 Megabits per second and more digital video. The company projects it will spend $3.7 billion to $3.8 billion per year in cap-ex to improve its systems, which is an increase but is not as much as Charter would spend.

In January, the company gained 25,000 residential "customer relationships," in which a household purchases TV, broadband or phone service. That's compared to last year, when Time Warner Cable lost 28,000 relationships during the same time.

"The folks at Charter and Liberty are very smart guys and they think they see a chance to force a trade before the public realizes what we can achieve with our stand-alone plan," Marcus said.

"So hopefully after today, you will feel a lot more comfortable about our go-forward plan and the intrinsic value of this company," he said.

The Time Warner Cable CEO reiterated that Charter would have to offer $160 per share, with $100 in cash and $60 in stock with provisions to protect the value of the bid if shares swing between signing and closing a deal.

Time Warner Cable said it would increase its dividend by 15%.

CFO Arthur Minson said that in the next three years Time Warner Cable could build up $12 billion in cash and capacity for leverage, allowing the company to continue pay dividends, repurchase shares and pursue "opportunistic M&A."

Chris King of Stifel, Nicolaus & Co. projected that Time Warner Cable would top last year's weak numbers, but questioned whether the company would achieve the growth rates it targets in its plan.

"We are becoming slightly more concerned about capex trends among cable operators," King wrote in a Thursday note, adding that Comcast has also increased its projections for capital expenditures.

Regardless of whether Time Warner Cable can meet goals over the next three years, the company's shareholder meeting looms in May. The deadline to get matters on the schedule is fast approaching.

"With just two weeks left for proxies to be filed," Moffett wrote, "TWC's board will either constructively engage or face a hostile tender and shareholder vote for a new slate of directors."

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