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Overview: Soros Fund’s new position in Time Warner Cable

Smita Nair

Must-know: Changes to Soros Fund Management’s 2Q14 positions (Part 4 of 7)

(Continued from Part 3)

Soros Fund Management and Time Warner Cable

Soros Fund Management initiated new positions in CONSOL Energy (CNX), Level 3 Communications (LVLT), Time Warner Cable (TWC), and New Oriental Education & Technology Group (EDU). It sold positions in FedEx (FDX) and Monster Beverage (MNST).

Soros Fund Management’s position in Time Warner Cable

Soros Fund Management’s new position in Time Warner Cable accounts for 0.49% of the fund’s second quarter of 2014 (2Q14) portfolio.

TWC is among the largest providers of video, high-speed data, and voice services in the U.S. Its cable systems are mainly located in five geographical areas—New York State (including New York City), the Carolinas, the Midwest (including Ohio, Kentucky, and Wisconsin), southern California (including Los Angeles), and Texas. As of June 30, 2014, TWC served approximately 15.1 million customers who subscribed to one or more of its video, high-speed data, and voice services. During the six months ended June 30, 2014, TWC’s revenue increased 2.6% to approximately $11.3 billion.

Comcast and TWC merger could be delayed

Comcast (CMCSA) agreed to buy TWC in February for ~$45.2 billion. This deal will create the largest cable provider in the U.S., with more than 33 million subscribers. Upon completion of the merger, all of the outstanding shares of TWC will be cancelled. Each issued and outstanding share of TWC will be converted into a right to receive 2.875 shares of Comcast’s Class A common stock. But the U.S. Department of Justice and the Federal Communications Commission (or FCC) are scrutinizing the deal, which is expected to close by the end of 2014. In order to win approval for the merger and keep its market share below 30%, Comcast forged a complex deal in April with Charter Communications (CHTR).

Recent reports cited a memo from TWC’s CEO, Robert Marcus, who said the FCC’s increased workload might lead to a delay in the merger’s approval or rejection. He added that deals in the telecom space, such as AT&T (T) and DirecTV (DTV) and a possible Sprint (S) merger with T-Mobile (TMUS), could put pressure on the FCC, “which is already busy with its proceedings on ‘net neutrality’ and the auction of additional wireless spectrum.”

Second quarter results miss estimates

TWC’s latest 2Q14 earnings and revenue missed estimates. The 2Q14 revenue grew 3.2% year-over-year to $5.7 billion, driven primarily by growth of 22.3% in business services revenue and 12.8% growth in residential high-speed data revenue. The adjusted diluted earnings per share (or EPS) increased 11.8% to $1.89, while the diluted EPS increased 7.3% to $1.76. The average monthly revenue per residential customer relationship (or ARPU) grew 1.7% to $106.98. Residential high-speed data ARPU increased 9.7% to $46.92. Net income was $499 million, or $1.77 per basic common share, compared to $481 million, or $1.65 per basic common share, for the second quarter of 2013.

TWC’s residential services revenue increased because of an increase in high-speed data revenue, partially offset by decreases in video and voice revenue. It saw residential videos’ net decline of 152,000, but it added 67,000 broadband Internet customers. TWC added that its business services revenue growth was primarily due to increases in high-speed data and voice subscribers, organic growth in cell tower backhaul revenue, and$29 million of revenue from DukeNet, which TWC acquired on December 31, 2013.

TWC lowers its revenue growth outlook over Dodgers TV dispute

TWC noted a 4.5% year-over-year increase in operating expenses. This increase was mainly due to higher programming and content costs associated with SportsNet LA in the residential services and other operations segments. SportsNet LA a regional sports network carrying the Los Angeles Dodgers’ baseball games and other sports programming.

The company trimmed its revenue projections for 2014 because of disputes over carriage agreements with other multichannel distributors such as DirecTV. In 2013, TWC had entered into a 25-year agreement valued at above $8 billion with the Dodgers to distribute SportsNet LA. It took responsibility for advertising and sales to other distributors. The company said on the earnings call that its forecast for revenue growth reduced to as low as 3.5% from 4.5%. Also, it said “to assume we do not sign additional affiliate agreements for the Dodgers network this year.” Operating income forecasts were reduced to a range of 3.75% to 4.75%, from 5% to 6%.

Continue to Part 5

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