Charter's Future Less Clear as Time Warner Cable Pushes Own Growth

New York (TheStreet) -- Charter Communications  (CHTR) would like to buy Time Warner Cable (TWC), and its investors have long cheered the proposition of a merger that could create a more formidable competitor to Comcast (CMCSA), AT&T (T) and Verizon (VZ).

Yet Charter's plan to may not be working out as originally hoped.

On Friday, shares of Stamford, Conn.-based Charter, the country's fourth-largest cable-TV provider, were slipping after it reported a larger loss in the first quarter than expected. The loss was due in part to expenses related to a digital overhaul of its cable-TV network as well as preparations to acquire Bright House Networks, the country's sixth largest cable-TV provider, a deal that was annulled when Comcast was unable to close the Time Warner Cable transaction.

Charter CEO Tom Rutledge didn't address Charter's acquisition plans in an investor conference call, leaving investors little insight into whether the company will make a play for either Time Warner Cable or Orlando, Fla.-based Bright House.

"Suddenly, the script has gotten a bit more complicated," said Craig Moffett of MoffettNathanson in a May 1 investor note.

Charter's ability to assume the role of acquirer is predicated on its broadband subscriber growth, which rose 8.8% in the quarter despite falling short of analyst consensus expectations for 9% increase. But Time Warner Cable, which agreed to be acquired by Comcast 14 months ago when the company's own broadband efforts were stumbling, has emerged as a stronger company.

Time Warner Cabler added 315,000 broadband customers in the quarter, compared with 269,000 a year ago, while voice customers increased by 320,000, compared with 107,000 in the prior-year period. But pushing growth curbed profits as net income fell to $458 million, or $1.59 a share, down from $479 million, or $1.70 a share, during the same period a year ago.

Nonetheless, sentiment on Time Warner Cable has been rising in the wake of its aborted merger with Comcast. Shares have gained 11% since April 23, when regulators said they would have an administrative judge rule on the proposed merger. Choosing not to engage in such a process for fear of it dragging out further, Comcast withdrew its offer.

Shares of Charter, meanwhile, have traded sideways over the past week as reports emerged that am emboldened Time Warner Cable had contacted privately held Bright House about a possible deal. Charter officials have reached out to Time Warner Cable about a merger, according to Bloomberg News, but so far, no merger plans.

"Time Warner Cable's bold bid for growth-at-the-expense-of-profitability looked for all the world like a company that wants to defer, or even deter, being acquired," Moffett said.

Such tactics are leaving Charter shares at a standstill. Its stock was falling 0.9% to $185.30 in early afternoon trading on Friday.

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