Top executives close to Charter Communications Inc. have begun
reaching out to Time Warner Cable Inc.'s management to discuss a
possible merger of the cable operators. And they have a clear
message: this time, we want to play nice.
Cable pioneer John Malone, the chairman of Charter's largest
shareholder Liberty Broadband Corp., called Time Warner Cable Chief
Executive Rob Marcus in recent days to express Charter's interest
in pursuing friendly deal talks, people familiar with the approach
said. That is in contrast to the unsuccessful hostile takeover
Charter pursued last year.
The call from Mr. Malone came after Comcast Corp. recently
walked away from a planned merger with TWC in the face of stiff
regulatory resistance. Charter had actually made contact with TWC
even earlier. The evening before Comcast officially said it was
dropping the deal, Charter Chairman Eric Zinterhofer had dinner
with Mr. Marcus, people familiar with the meeting said.
Charter, the fourth-largest U.S. cable operator, has been laying
the groundwork for making an offer to No. 2 player Time Warner
Cable. The two sides will continue talking this week, when Charter
Chief Executive Tom Rutledge and Mr. Marcus are set to meet at the
annual National Cable & Telecommunications Association
convention in Chicago, the people said.
The NCTA's show, which kicks off Monday, is normally a venue for
companies to show off the latest technology in cable TV or
broadband. But this year, the cable consolidation drama is likely
to take center stage. News of the forthcoming Rutledge-Marcus
meeting was earlier reported by CNBC.
Already, the tone of Charter's approach is markedly different
from its takeover effort in 2013 and early 2014, which culminated
in Charter making a hostile bid and nominating a slate of directors
to replace the TWC board. That effort failed, as Comcast emerged as
a bidder and struck its ill-fated deal with TWC.
People close to Charter have made clear that the company doesn't
want to make the mistake again of lowballing a bid. They also said
that Charter is aware that it will have to offer a significant
portion of its bid in cash to satisfy Time Warner Cable's concerns
about whether Charter stock is overvalued on deal speculation.
Time Warner Cable's improving operations could complicate
Charter's bid. Last time TWC was under takeover pressure, it was
bleeding subscribers. But this past week, the company reported its
first video customer growth in a quarter since 2009, even as
Charter reported a surprise video customer loss.
To make matters more complex, the companies are already
jockeying for advantage by courting Bright House Networks LLC, a
smaller operator serving about 2 million customers. The Wall Street
Journal reported on Thursday that Charter and TWC had separately
held preliminary talks with Bright House about an acquisition. For
each, reaching a deal to acquire Bright House could place it in a
better bargaining position with the other company.
Some observers said the situation was more akin to a love
triangle than a war between Charter and Time Warner Cable over
Bright House. People familiar with Charter's thinking said the
company believes the best option would be for Time Warner Cable,
Charter and Bright House to reach a deal together. Time Warner
Cable is open to entertaining any deal talks, people familiar with
TWC's thinking said, with the goal being that any deal reached
maximizes shareholder value.
But after federal regulators" resistance to the Comcast-TWC
merger, it remains a question how they would view a three-way deal
to create another cable giant, some people close to the deal talks
noted. A combined Time Warner Cable-Charter-Bright House would
serve about 24 million business and residential customers, in
striking distance of Comcast's roughly 27 million.
At least for now, Charter doesn't appear deterred. On a Friday
first-quarter earnings conference call, Charter's Mr. Rutledge
said, "I think every company is different, every transaction is
different, and they're really independent structural questions from
a regulatory perspective."
Dana Cimilluca contributed to this article.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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