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Charter offers to buy Time Warner Cable in public appeal to shareholders

A cable truck returns to a Time Warner Cable office in San Diego, California December 11, 2013. REUTERS/Mike Blake

By Liana B. Baker and Nicola Leske

NEW YORK (Reuters) - Charter Communications Inc formally offered on Monday to acquire larger rival Time Warner Cable for $37.3 billion, signaling the start of what is likely to be a contentious battle for control of the No. 2 U.S. cable operator.

Charter, the No. 4 cable operator, proposed paying $132.50 per share - barely higher than where Time Warner Cable shares closed on Monday - consisting of around $83 per share in cash and its own stock.

Monday's offer is the boldest sign yet that cable billionaire and dealmaker John Malone thinks that new managers could do a better job running the company, which has fallen behind and underinvested in taking on competitors and on digital technology.

Including debt, the deal is worth $62.35 billion. Time Warner Cable shareholders would get 45 percent ownership in the combined company.

Charter said on Monday that it held discussions with Time Warner Cable, which is led by Chief Executive Officer Rob Marcus, but the company wanted a higher bid and talks have not been constructive. Charter now plans to take the deal directly to Time Warner Cable shareholders.

"They came back to us with a design to be dismissive. They have not engaged with us. All of the conversations have been one way," Charter's CEO Tom Rutledge said in an interview.

Rutledge, who spent 23 years at Time Warner Cable earlier in his career, told Reuters he could run the company better and pointed to how Time Warner Cable has lost about 500,000 video subscribers in the past two quarters.

He said Time Warner Cable shareholders should be happy with the $83 per share cash component of the deal, since it is at the same level as the stock price before the takeover speculation began six months ago.

"The purpose of going to the public is to talk to Time Warner shareholders and to ask them to consider how valuable this deal is and to ask management and the board to engaged," he said.

Rutledge admitted that a hostile offer in the friendly cable industry where companies do not directly compete with each other is "unusual" but he said Monday's letter was necessary because talks have not progressed over the past six months.

He said financing was in place and banks could sign commitment letters "in a matter of days."

"Putting Charter and Time Warner Cable together makes it a premier asset," Rutledge said.

Charter stock was up 1.3 percent in after-hours trading while Time Warner Cable shares were up 1.8 percent at $135.

Rutledge declined to give an estimate on potential cost savings from a deal but said they were "significant" and they had told Time Warner Cable what they were. Reuters has previously reported that Liberty management had told investors that synergies could be as high as $700 million.

Rutledge said Malone's Liberty Media Corp wants to retain its 25 percent ownership stake in Charter and has the option to invest equity in the deal. He said the exact amount was being worked out.

Time Warner Cable was not immediately available for comment. Rutledge said he was not in talks with Comcast to get the No. 1 provider involved in the bidding process.

"This is Charter bidding for Time Warner. That's the only discussion we have going," he said.

Charter said that it had made repeated overtures to Time Warner Cable for more than six months but that the response led Charter to determine that there was no intent to engage in a merger.

Charter said in a letter to Time Warner Cable that the company had unrealistic price expectations.

The smaller rival said it remained open to all options but that it was fully prepared to finalize a deal on an expedited basis.

Time Warner has become one of the industry's weakest performers. Leichtman Research Group estimates that over the past two years, the company lagged rivals by losing nearly 10 percent of nearly 13 million video customers.

Charter said Goldman Sachs and Liontree Advisors were lead advisers. Guggenheim Securities was also a financial adviser to Charter.

BofA Merrill Lynch, Credit Suisse, and Deutsche Bank Securities Inc are also financial advisers to Charter, and together with Goldman Sachs, are leading the financing for the transaction. The law firms Wachtell, Lipton, Rosen & Katz and Kirkland & Ellis LLP are also representing Charter.

(Reporting by Nicola Leske and Liana Baker in New York; Editing by Bernard Orr and Lisa Shumaker)