Last week, Charter Communications formally offered to pay $37.4 billion for Time Warner Cable. It was the third time Charter had placed a bid for TWC, and it was the third time in a row it was harshly rejected. Charter is the nation’s fourth largest cable company, while TWC is number two. Charter’s bid was for $132.40 a share, roughly what TWC is trading at today — not the $150-160 it has said it might accept. So why exactly does Charter think it can punch above its weight and take over a larger rival with a lowball bid? Two words: Darth Vader.
The man widely seen as the force behind Charter's aggressive new stance is John Malone, a former titan of the cable industry who earned the nickname Darth Vader for his aggressive style during the 80s and 90s. Malone took a step back during the aughts, but has now returned with a vengeance. He acquired a big stake in Charter through an investment from his Liberty Media group. And he sees TWC as the vulnerable contender he can use as a stepping stone to reclaim his crown (or his black helmet, as the case may be).
TWC lost more than 500,000 subscribers last year
In 2013, TWC shed subscribers across all its categories, shrinking its overall income from the year before. It also faced off with CBS over fees, a battle which led to a blackout for TWC customers during the opening of the NFL season. TWC lost more than 300,000 customers during the month-long blackout and eventually had to surrender to CBS with egg on its face.
"Malone saw an opportunity to make an aggressive move against Time Warner," says Rich Greenfield, an industry analyst with BTIG Research. "The CBS blackout was very challenging for them. But he isn’t going to get anywhere unless he makes an offer way closer to market price."
Smaller television players are struggling to compete with telecom giants like Verizon and AT&T
Now that Charter has pushed TWC into the spotlight, chatter is running rampant that more bidders are circling. Consolidation is nothing new in the cable industry, which began as a highly regional affair but has increasingly become a game of scale. Smaller television players have struggled to compete with telecom giants like Verizon and AT&T, which are pushing their way into television and bundling cable with internet and mobile plans. But for Malone, it may be the best bet for survival, especially as larger rivals like Comcast are reportedly looking to swallow up smaller players like Charter and TWC.
Malone’s problem is that despite its struggles, TWC’s stock is currently at an all-time high, having risen around 30 percent over the last year. In fact, his multiple aggressive overtures may be self-defeating, as persistent rumors of a takeover have helped to goose TWC’s share price in the face of its business woes. A single more generous offer when its stock was still on the ropes would have had better luck. Malone has argued that since the stock has risen on the news of his offer, the current bid is more than fair. "We think the premium is already in the stock," he told The New York Times.
Malone's aggressive posturing may be self-defeating
Charter’s plan now is to attempt an end run around TWC’s leadership, appealing directly to shareholders in the hopes of inciting a hostile takeover. Unfortunately for Malone, there are few major independent stakeholders he could hope to win over to his side. He did appeal directly to customers, saying TWC’s notoriously bad service is responsible for its subscriber losses (coincidentally, Charter's appeal among consumers has consistently been rated as equal to or worse than TWC). In other words, even if Darth Vader gets his way, don’t expect the cable guy to start showing up on time.