Charter Communications offers $61 bn to buy Time Warner Cable

Charter Communications, (2012 revenues: $7.2 billion), yesterday said it had offered to buy Time Warner Cable (2012 revenues: $10.9 billion) for about $61 billion, in a move aimed at a merger of the No 4 and No 2 cable companies respectively in the US.

Charter believes that, unlike substantially all other cable transactions over the last five years that were cash transactions, this transaction would be based on combining shareholder groups and allowing "Time Warner Cable shareholders to participate at a substantial premium to it's unaffected stock price as well as meaningful upside following completion."

The merger is likely to shake up the troubled cable television industry, commentators say.

In a prompt rejection of the offer, Time Warner Cable's board of directors termed it "a third grossly inadequate proposal."

Charter's bid of $132.50 a share for the much larger Time Warner Cable represents one of the biggest takeover offers on Wall Street since the financial crisis. It includes $37 billion in cash and stock and the rest in assuming TWC's debt.

According to commentators, it might lead to a bidding war for TWC, with other cable operators such as Comcast and Cox Communications likely to enter the fray.

"Charter's latest proposal is a non-starter," said TWC's CEO Robert Marcus in a statement yesterday. "Not only is the nominal valuation far too low, but because a significant portion of the purchase price would be in Charter stock, the actual value delivered to TWC shareholders could be substantially lower given the valuation, operational and significant balance sheet risks embedded in Charter's stock."

Charter Communications is held 27 per cent by John Malone's Liberty Media.

Malone, known as ''The King of Cable'', built a small Denver cable company into the into the US' largest system in the 1980s. Commentators say Malone is looking to emerge as the king of consolidation in the same industry once again.

Though the board of Time Warner Cable has rejected the offer if the two do work out a deal, the merged entity's would have around 16 million video subscribers, afgter Comcast's 22 million subscribers and satellite provider DirecTV's 20 million.

Malone, 72,  wants cable companies to grow larger to allow them to take on content owners such as Walt Disney, Twenty-First Century Fox Inc and others, who increasingly squeezing cable and satellite for higher fees at the expense of their margins.

According to Charter's CEO Tom Rutledge cable can bring great value in the market, "if well executed."

Meanwhile, analysts point out that Charter Communications' offer for Time Warner Cable could be one of the media industry's largest merger deals if it fructifies.