A merger between Charter Communications, the fourth largest cable company in the US, and Cox Communications, the third largest, is unlikely, said a spokesperson for Cox and two sector bankers.
“We’ve definitely made it clear we’re not for sale,” said Todd Smith, director of media relations at Cox. “The owners, including the Cox family, are committed to cable. It’s a healthy business with lots of growth.”
In an effort to gain scale, Charter had the bravado to offer Time Warner Cable, the second largest cable company in the US, $132.50 per share, or $37 billion, in a hostile merger attempt on January 13. The following day, Time Warner Cable, with around three-times the market capitalization of Charter, rejected the bid as too low. Charter initiated a proxy fight early this month but Comcast, the largest US cable operator, swept in with a friendly $159 per share offer for Time Warner Cable.
Since the Comcast bid, pundits have wondered what Charter and Liberty Media, which has 27% ownership in the Connecticut-based cable provider, might attempt to acquire next. If Charter had the nerve to make a run at the second largest cable company in America, perhaps it can pull off a run at Cox, according to reports. Cox is the third largest US cable operator, still bigger than Charter, and the clearest second choice if the company aims to gain enormous scale in one M&A event.
The problem is Cox is owned by a family through Cox Enterprises, said the bankers, and the taxes owed after a deal at today’s multiples, about 9x trailing 12-month revenue, would leave the family without a meaningful return. Meanwhile, Charter’s a “great cash generator,” said the first banker.
Charter might make a run at a host of small companies, like Suddenlink and Wide Open West, but only Cox approximates what Charter could accomplish in a Time Warner Cable acquisition, said the first banker. “Nothing else moves the needle.”
Charter had the nerve to make a hostile bid for Time Warner Cable because Liberty Media’s chairman John Malone is the “greatest aggregator” of acquired assets in media while Charter’s CEO Thomas Rutledge is the “best operator” in cable, said the first banker. Time Warner Cable was undervalued and its CEO Glenn Britt retired in December, so Malone opted to make a “long shot” offer, thinking Comcast wouldn’t brave regulators in a merger attempt with its largest rival. “He was wrong,” the banker said.
Although Charter could increase its offer for Time Warner Cable, the second banker said Comcast has too much financial flexibility for the smaller company to compete effectively in a bidding war. Charter’s most probable next move is to wait and see if regulators approve the Comcast-Time Warner Cable combination.
“Charter has always maintained that its greatest opportunity for shareholders is to execute on its business plan in its current footprint,” said Justin Venech, Charter’s vice president of communications. Liberty Media did not return phone calls requesting comment.