Charter to Time Warner Cable: Take our $61B bid seriously

Cable operator Charter Communications wants to buy Time Warner Cable, and the company's CEO is appealing to shareholders to get the two companies to the bargaining table.

On Monday, Charter CEO Tom Rutledge sent a letter to Time Warner Cable CEO Robert Marcus urging him to engage in a real negotiation for the sale of his company. Charter is offering to buy the company for about $132.50 a share, which puts the value of the deal at around $61 billion including debt, according to a report from Bloomberg News.

This is the third offer Charter has made to Time Warner. Rutledge stated in his letter that Time Warner refused offers presented in June and October. In December Rutledge met with Time Warner's CEO, where Rutledge said he "communicated a willingness to submit a revised proposal in the low $130s, including a cash component of approximately $83."

Marcus supposedly agreed to allow the company's CFOs to meet to review the transaction. But Rutledge expressed frustration in the letter that Marcus and his team at Time Warner Cable were not taking the proposal seriously.

"We believed Time Warner Cable and its Board of Directors would recognize the significant value of this combination and genuinely engage," he said in the letter "Instead, you came back with a verbal offer at an unrealistic price expectation."

He said the conversation has been "one-way," which has led Charter's executives to conclude that Time Warner Cable's management team and Board of Directors are not genuinely interested in a serious offer from Charter.

Rutledge said that the company is serious about its plan to buy Time Warner Cable. And by publishing the letter, he hopes that Time Warner Cable's shareholders will put pressure on the management team and the board to sit with Charter at the negotiating table in good faith.

"While we are preserving all options going forward, we remain open to real engagement," he said. "We would like to engage with you to conclude an agreement for a business combination that is beneficial for your shareholders and ours."

Rutledge said that his company has already lined up the financing to close this deal, and he is willing and able to sign commitment letters in a matter of days.

Leverage with content companies
Charter is the fourth largest cable operator in the US with about 6.8 million subscribers in 29 states. Time Warner Cable is the second largest cable company in the US with more than 15 million subscribers to its services in 29 states. Rutledge said that by combining the companies, they will have more leverage over future negotiations with content companies. Time Warner Cable would also get better tax treatment if it was combined with Charter, Rutledge also argued.

Rutledge also said that Charter could help Time Warner improve customer service and restart growth in video.

Time Warner lost some 306,000 video customers in the third quarter of 2013 over its blackout battle with TV broadcast network CBS this summer. (Disclosure: CNET is owned by CBS.) For several weeks Time Warner Cable and CBS were in standoff over retransmission fee negotiations, which ultimately led to Time Warner Cable customers not getting access to CBS broadcast content on their cable TV service. The stalemate affected millions of cable TV viewers in big cities such as New York, Dallas, and Los Angeles.

"Since we made our first proposal, Time Warner Cable has lost another half million video customers," Rutledge told Bloomberg in a phone interview. "Their customer service continues to decline in every measure. We can improve it."

What about Comcast?
Rumors floated around late in 2013 that Comcast, the largest cable operator in the US, is also interested in acquiring Time Warner Cable. News reports suggest that Comcast may be interested in buying the company outright or splitting markets with Charter. While it's true that Time Warner Cable does not compete directly with Comcast or Charter in any single market, there could be regulatory concerns when it comes to media consolidation with respect to a takeover from Comcast. With Charter, which is less than half the size of Time Warner Cable, there likely would not be any regulatory hurdles to face. And any divestiture could be taken care of via a combined deal with Comcast.

For now, Charter is simply trying to get the attention of Time Warner Cable shareholders in an effort to get the company to enter serious negotiations.