Charter Communications (CHTR) wants Time Warner (TWC) shareholders to decide on the latest offer by Charter to take over Time Warner. Charter, number four in the cable space, is vying to take over Time Warner which is number two. Liberty Media (LMCA) controls 27% of Charter stock. The latest offer is priced at about $132.50 with about $83 in cash and the balance in Charter stock. Including debt, the deal rings the register at over $62 billion. Under the proposal existing Time Warner shareholders would own about 45% of the combined company.
For its part, the Board at Time Warner characterized the deal as "grossly inadequate" and that this was an offer to "steal the company". Time Warner fired back that it would consider an offer closer to $160 per share consisting of about $100 in cash and $60 in stock. Meanwhile, Jeffries, an analyst firm covering the sector classifies the latest action as an opening salvo and feels a deal could be reached at closer to $150 per share.
The reaction of the Time Warner Board is similar to the reaction many shareholders of Sirius XM (SIRI) have to a Liberty Media offer to acquire the satellite radio company that Liberty already has a 52% stake in. It is widely thought that Liberty Media wants full control of Sirius XM in order to improve the chances of the Charter play at Time Warner. Sirius XM generates substantial cash, and given that fact could, in theory, be levered up (take on debt).
In my opinion a Charter and Time Warner deal can be reached without Liberty acquiring Sirius XM. However, the numbers do work better for Liberty if Sirius XM is under the full control of Liberty.
Charter expressed in a letter to Time Warner that TWC stock has shot up over the past three months on speculation of a deal and that now the "premium" sought is already built into the share price. In October Time Warner Stock was at about $110 per share, whereas today it trades at about $135. A similar dynamic has happened with Sirius XM since Liberty announced its take-over bid for the satellite radio provider. Shares of Sirius XM went from about $3.57 to as high as $4 after the take-over news. In fact, some of the same language in the Charter talks could well become deja-vu for Sirius XM shareholders in the weeks ahead (i.e. the premium is reflected in the current price). Charter will host a call today at 4:30 PM ET to discuss the details of its offer.
Clearly Liberty Media is on the hunt to expand. Between the Time Warner Deal, and the Sirius XM deal alone we are talking about somewhere between $75 billion and $100 billion in market cap when all is said and done.
All of these dynamics mean a lot of extra homework for investors in Liberty, Sirius XM, Time Warner, and Charter. Whether we like it or not, investors in any of these companies may well find themselves tied at the hip in some ways. Stay Tuned!
Additional disclosure: I have no position in Charter or Time Warner.