Charter Communications is preparing to make an offer of less than $135 a share for Time Warner Cable, according to people briefed on the matter.
The offer, which is likely to come in the form of a so-called bear hug letter, will consist of a mix of cash and Charter stock. It will set the wheels in motion for a new round of consolidation in the cable operator industry.
Such a deal would have an equity value of around $38 billion. Charter could make its offer as early as next week
Charter has been vocal about its appetite for a deal with Time Warner Cable, the second-largest cable operator after Comcast. In recent months, as speculation about a deal has increase, Time Warner Cable’s stock has surged from around $94 per share to as high as $138.22 per share. On Friday afternoon shares were trading around $131 apiece.
Charter believes it can get away with offering what is a small premium above the current trading price because of the steep run up in recent months. Shares of Time Warner Cable were trading around $131 on Friday, up more than 8 percent since early September.
Charter is being advised by LionTree Advisors, a boutique investment bank run by former UBS head of mergers and acquisitions Aryeh Bourkoff, and Goldman Sachs.
Yet behind the scenes at Charter is John Malone, the media mogul who once sold the country’s largest cable operator, TCI, to AT&T. Earlier this year Mr. Malone’s holding company, Liberty Media, acquired 27 percent of Charter. Now Mr. Malone and Liberty Media’s chief executive, Greg Maffei, are encouraging Charter to make a bid for Time Warner Cable.
Though Charter would have to take on significant debt to pay for Time Warner Cable, people familiar with the company’s thinking believe it is a manageable amount, and that the combined company could pay it down quickly. Time Warner Cable does not currently have much leverage, and could support a larger debt load, they said.
Time Warner Cable appears in no rush to do a deal. Though its pay television subscribers are falling, it continues to find success providing high speed internet and business services.
Nonetheless, Time Warner Cable earlier this year approached Comcast about a merger. Comcast appears to be taking the invitation seriously, and has hired JPMorgan to advise it, a move that also gives it access to one of Wall Street’s biggest balance sheets.
Yet such a deal would unite the two largest cable operators and face close antitrust scrutiny.
Charter’s plan to make a bear hug offer was reported earlier by Bloomberg News. All parties involved declined to comment.
Michael J. de la Merced contributed reporting.
