Rebuffed by Time Warner, Charter resets sights

Cox, the No. 3 US cable firm, may be target

Charter Communications officials are reportedly meeting next week to explore strategic options.
Jeff Roberson/Associated Press
Charter Communications officials are reportedly meeting next week to explore strategic options.

NEW YORK — Charter Communications may not lick its wounds for long before trying to grab another piece of the consolidating US cable industry.

Comcast chief executive Brian Roberts swooped in last week to buy Time Warner Cable for $45 billion, nabbing the second-largest US cable provider out from under Charter CEO Tom Rutledge’s nose. Charter, John Malone’s Liberty Media Corp., and advisers are having a board meeting next week to discuss options, according to a person familiar with the matter.

While Charter is unlikely to match Comcast’s bid, it will probably buy some of the 3 million subscribers Comcast plans to divest and then set its sights on another target, said Paul Sweeney of Bloomberg Industries. Closely held Cox Communications, the industry’s number-three provider with about 4.4 million subscribers, may be an attractive consolation prize to bolster Charter’s subscriber ranks, said CRT Capital Group. Bright House Networks and Suddenlink Communications also could help Charter expand, said Raymond James Financial.


Charter and billionaire Malone ‘‘have already made it clear that scale is important in this industry,’’ said Lance Vitanza, an analyst at brokerage CRT Capital. ‘‘At this point the most likely strategy is to accept defeat and move on to other acquisitions.’’

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Alex Dudley, a spokesman for Charter, declined to comment on the company’s plans. A representative for Cox said the company isn’t for sale.

Time Warner Cable last week agreed to sell itself to Philadelphia-based Comcast in a stock deal valued at $158.82 a share when it was announced. The offer was 20 percent higher than Charter’s rejected bid of $132.50.

Charter is unlikely to be able to acquire the New York- based cable operator now, said Tuna Amobi, a New York-based equity analyst at S&P Capital IQ. Two days before the surprise agreement with Comcast, Charter had nominated a full slate of directors to Time Warner Cable’s board.

‘‘It’s hard to imagine that they’re going to be pushing ahead with the proxy battle,’’ Amobi said. ‘‘The case for the superiority of Comcast’s offer was well made.’’


Charter is unlikely to match Comcast’s bid and is willing to study any assets Comcast would sell, according to a person familiar with the matter, who asked not to be identified because the negotiations were private. Buying Time Warner Cable will add more than 11 million residential subscribers to Comcast’s 21 million video customers, compared with 4.3 million for Charter.

The 3 million subscribers Comcast may divest could be worth about $17.6 billion, based on the value that the Time Warner Cable bid placed on each subscriber, according to Bloomberg analysis. Matthew Harrigan, an analyst at Wunderlich Securities Inc., estimates they could be valued at $13 billion to $16 billion.

Picking up divested subscribers won’t be the end of Charter’s dealmaking, according to Sweeney. Malone, who owns a stake in Charter through Liberty Media, has said mergers will help the cable industry cope with the lower video profit margins caused by higher programming costs and fewer new customers.

‘‘John Malone’s stated intention is to participate in consolidation of the cable television industry,’’ Sweeney said in a phone interview. ‘‘He’s going to have to do a number of smaller deals to get to where he needs to be.’’

Cox held talks last year about combining with Charter, people familiar with the discussions said in August.


Cox, which is owned by family-controlled Cox Enterprises Inc., would be an appealing takeover target for Charter because it has strong assets and is the next biggest target available after Time Warner Cable, said Sweeney and Vitanza of CRT Capital. Cox primarily provides cable services in the Southeast, Midwest, and California.

‘‘It’s basically the only really big bite you could take,’’ Vitanza said. ‘‘It’s the only one that would really allow them to add meaningfully to their position.’’

A purchase of Cox won’t be possible unless the family wants to sell, according to Leo Hindery, managing partner of private-equity fund InterMedia Partners.

‘‘The Cox assets are superior assets,’’ Hindery said in an interview with Bloomberg Television. ‘‘They’re geographically well situated, brilliantly run. They will go into Charter only if the Cox family decides that’s good for the Cox family.’’

Cablevision Systems Corp., the $4.4 billion cable operator controlled by the Dolan family, is another acquisition candidate, said Vitanza.