Charter Communications finally unveiled a takeover bid for Time Warner Cable on Monday, offering $37.8 billion for its much bigger rival.
Should Charter succeed in its campaign, its advisers stand to reap a bounty of fees. And since analysts and investors appear to believe that any successful bid would end up being higher, those banks could make even more.
At the current bid â€" including debt, Charter’s offer is valued at $61.7 million, or $132.50 a share â€" Charter’s investment banks could earn between $80 million and $100 million, according to estimates from Freeman & Company. That would be split among the cable company’s advisers, including Goldman Sachs, LionTree Advisors and Guggenheim Partners, and lenders Bank of America Merrill Lynch, Credit Suisse and Deutsche Bank.
The trio of banks working for Time Warner Cable (Morgan Stanley, Citigroup and Allen & Company) could fetch between $100 million and $120 million.
It’s possible that the firms, especially Time Warner Cable’s banks, may earn even more. Last month, Time Warner Cable had told its unwanted suitor that it wouldn’t accept a bid worth less than $160 a share.
Analysts wrote that Charter would almost certainly need to raise its bid if it wishes to succeed, but perhaps not by a whopping amount.
According to analysts at Barclays, Charter may not want to raise the amount of debt that it would take on to finance the deal, since it will still need to pay for upgrades to the combined company’s operations. And the amount of cost savings may ultimately be limited.
More from Barclays:
Based on this, we do not expect the ultimate transaction price be greater than the $140-$145 range that we have always expected. Incrementally, another way to sweeten the deal could be to increase the proportion of cash. Our base case expectation has been 70% cash, which is higher than the proportion in the initial bid of ~63%.
Analysts at JPMorgan Chase also believe that a deal may ultimately happen at closer to $140 a share. From their report, which refers to the two companies’ ticker symbols:
We believe TWC’s share price at $132.4 has already priced in hopes for a deal with Charter, and is trading at a substantial premium to where it would be without M&A speculation, especially given weak TWC numbers in 2H13. Should TWC management resist the deal, we think TWC shares would drop dramatically, possibly to the low $100s if a deal was permanently off the table, while we believe that many TWC investors would sell at ~$140-145.
Shareholders certainly appear to be anxious for a higher bid. Shares in Time Warner Cable traded at $136.66 as of midday on Tuesday, well above Charter’s offer.
