Returned today from the CinemaCon confab, so I’m just now getting a chance to catch up with Charter Communications‘ astonishing SEC filing that urges Time Warner Cable shareholders to support its $37B cash-and-stock bid over Comcast’s $45.2B all-stock offer. I don’t know if there’s enough in the proxy to derail the Comcast-TWC deal. But it’s sure to create some turbulence — if nothing else by giving ammo to class action lawyers who want to argue that the TWC board failed to faithfully represent shareholders’ interests when it stiff-armed Charter and embraced Comcast.
Charter says that TWC shareholders should reject the Comcast proposal because it faces a “high degree of regulatory risk.” If Comcast prevails, it would have “nearly 40 percent of the broadband market, around 33 million TV subscribers and a major programmer in NBC Universal. … [I]t is difficult to imagine a transaction that could concentrate the industry more than the Proposed Comcast Merger.” There’s also a danger that the approval process will run past mid-2015, potentially making it hard for TWC to make decisions while it “inevitably suffer[s] disruption.” Charter charged that the TWC board refused to “meaningfully engage” with its CEO Tom Rutledge, and then — in the Comcast deal — “agreed to limit its own ability to consider any competing bid or to provide bidders with the due diligence that would be valuable to provide a competitive bid.” To make matters worse, Charter says that the value of Comcast’s offer has diminished as its stock price has fallen. It’s now worth about $141.16 per TWC share instead of $158.82, which seems to belie TWC’s position that Charter’s offer was inadequate because the No. 2 cable company “would not take a penny less than $160.”
Charter also sided with activist investors who object when companies have special super voting shares that give insiders outsized power. In the case of Comcast, the family of CEO Brian Roberts controls 33.3% of the votes “even though those shares would represent less than 0.3% of the economic value of all shares of Comcast. … This would result in what we believe is a negative impact on Comcast’s corporate governance, to the detriment of the holders of Class A shares” which would include TWC investors. The bottom line, Charter says, is that a “no” vote on the Comcast deal “will send a message that you want the management to represent your interest and maximize your investment.”
TWC says it remains “fully committed to our merger with Comcast, which we believe is in the best interests of shareholders.”