Investors See Premium in Time Warner Cable Bundle
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.
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
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.