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Exclusive: Charter weighs bid for Time Warner Cable by year-end -sources

The Time Warner Cable office is shown in Carlsbad, California November 5, 2012. REUTERS/Mike Blake

By Soyoung Kim, Nadia Damouni and Ronald Grover

NEW YORK/LOS ANGELES (Reuters) - Charter Communications Inc is weighing a bid for Time Warner Cable Inc before year-end and is trying to devise a deal structure that would lure the No. 2 U.S. cable operator's shareholders, people familiar with the matter said.

John Malone's Liberty Media Corp, which owns about a quarter of Charter, approached Time Warner Cable earlier this year about merging Charter and Time Warner Cable. Talks between the parties restarted over the past few days, according to a separate source close to matter, but Time Warner Cable's management remains cool to the idea of a tie-up.

Time Warner Cable, which earlier this week indicated that it was open to a deal at the right price, has a market value of more than $34 billion, compared with Charter's market value of about $13 billion.

Charter and Time Warner Cable declined to comment, while Liberty Media did not immediately respond to requests for comment. The sources asked not to be identified because the matter is confidential.

Cable billionaire Malone, who controls Liberty Media, has been talking up the need for consolidation in the cable industry, since he jumped backed into the U.S. cable market last spring. The U.S. cable TV market is mature and faces rising programming costs and the continued loss of video subscribers.

Cable operators are also grappling with stiff competition from video services offered by satellite TV and phone companies, as well as internet-based services such as Netflix Inc.

Charter is hoping that Time Warner Cable's weak operating performance in the third quarter, in which it saw a fall in both TV and internet subscribers, would make the company more open to a bid, the sources said.

Charter is working with its advisers on a deal structure which could add pressure on Time Warner Cable's management to come to the negotiating table, the sources said.

Time Warner Cable ranks second to Comcast Corp in the U.S. cable market with about 12 million customers, while Charter is the fourth-largest cable provider with about 4 million video customers.

Time Warner Cable on a conference call on Thursday attributed the steep decline in customers to a month-long blackout of No. 1 U.S. broadcaster CBS Corp and said it was open to consolidation if it would make money for shareholders.

But its outgoing chief executive, Glenn Britt, also said on the call that he has witnessed mergers that were lopsided for one set of shareholders, such as the disastrous AOL-Time Warner merger 13 years ago.

Time Warner Cable has consistently underperformed other cable operators in recent quarters by losing hundreds of thousands of video subscribers and also seeing slowing growth in broadband customers.

Shares of Time Warner Cable rose 3 percent on Thursday as takeover speculation overshadowed the company's third-quarter results. The company's shares closed up 2.8 percent at $123.51 on Friday following the report that Charter is weighing a bid.

Charter shares closed up 3 percent on Friday at $138.07 in Nasdaq trading

Charter will report third quarter earnings next week, but is not expected to reveal its plans of a deal, the sources said.

(Reporting by Soyoung Kim, Nadia Damouni, Ron Grover, Liana Baker; additional reporting by Nicola Leske; Editing by Bob Burgdorfer and Chris Reese)