U.S. Markets closed

Time Warner Cable Exploring Options

Zacks Equity Research

Yesterday, Bloomberg reported that Time Warner Cable Inc. (TWC) has decided to wait for the best bid for its takeover. The company stated that before finalizing any deal, it will thoroughly evaluate whether the deal will add sufficient value to its investors. Notably, shareholders of the company have approved the divestiture.

The news of a proposed merger between Charter Communications Inc. (CHTR) and Time Warner Cable first surfaced after Liberty Media Corp. (LMCA) acquired a 27.3% stake in Charter. Liberty Media is aggressively pursuing the idea of Charter Communications acquiring a major cable TV operator in the U.S. such as Time Warner Cable. Nevertheless, Time Warner Cable rejected the earlier acquisition attempt by Charter.

Industry sources reported that Charter is expected to bid at $135 per share of Time Warner Cable in early Jan 2014. However, Time Warner Cable demands over $150 a share. Several industry researchers have estimated that the offer size may go up to $160-$162 per share. Meanwhile, Comcast Corp. (CMCSA), Cox Communications and several private equity firms are also reported to be exploring strategic options to acquire Time Warner Cable.

A recent analysis by Leichtman Research Group Inc. revealed that the cable TV operators in the U.S. are gradually losing hold in the pay-TV market. Internal dynamics of the pay-TV market is slowly shifting toward fiber-based video offerings of large telecom and satellite TV operators. Video offering is the core business area of the cable TV operators, which is slipping out of their hands.     

Leichtman also stated that the top nine U.S. cable TV operators incurred a net loss of 600,643 pay-TV customers in the third quarter of 2013. This was the cable TV industry’s biggest net loss after the third quarter of 2010. Time Warner Cable lost a whopping 306,000 residential pay-TV subscribers in the said quarter.

At this juncture, consolidation in the cable TV industry may become a logical conclusion. The U.S. telecom sector is witnessing massive consolidation drive in order to attain sufficient spectrums and economies of scale. Currently, Time Warner Cable has a Zacks Rank #3 (Hold).

Read the Full Research Report on CMCSA
Read the Full Research Report on CHTR
Read the Full Research Report on TWC
Read the Full Research Report on LMCA

Zacks Investment Research