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Sunday, November 8, 
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Will Time Warner Cable acquire Charter?

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Pali Research analyst Richard Greenfield said that Time Warner Cable Inc. may target Charter Communications Inc. after it splits from Time Warner Inc. at the end of the year.

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Being part of the parent has limited Time Warner Cable's ability to take on leverage, which it could use to fund buyouts of other cable operators or stock repurchases, notes Greenfield. Time Warner Cable has a P/E of 26.49.

However, Time Warner Cable's choices for acquisitions are limited since Cablevision Systems Corp. and Cox Communications Inc. are family controlled, and neither family seems to have the desire to sell. Therefore troubled Charter, which is majority owned by Microsoft Corp.'s co-founder, Paul Allen, is a logical target. With a market cap of $518 million and its shares facing a questionable future trading below $5 for more than 52 weeks, the company is a prime takeover candidate. Despite the depressed shares, the cable company has funding in place to carry it through 2010. Additionally, Allen has fielded "informal inquiries" from various unnamed parties about "investments or transactions," according to a March SEC filing.

According to Greenfield's report, Time Warner Cable could consider a $5 a share acquisition of Charter in mid- or late 2009. Such a deal would likely be in cash, but an all-stock or cash/stock transaction is possible, noted Greenfield. Time Warner Cable could reduce Charter's programming costs by 20% while also expanding its earnings.

Greenfield is clearly on to something as both companies have collaborated to serve regional areas in the past. However, with Allen already peddling the company to potential buyers, Time Warner Cable's spinout may come too late. - Maria Woehr

See TheDeal,com: Time Warner to sever cable business
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