Rob Marcus, CEO of Time Warner Cable (UNKNOWN:TWC.DL) announced that the board was rejecting smaller cable company Charter Communications' (NASDAQ:CHTR) third bid, this time for around $62 billion or $132.50 per share. First it bid $114 in June, then $127 in October. But Marcus says the board will only accept an offer of $160 per share.
On first contemplating this article I was going to write about what a governance nightmare John Malone-controlled-and-owned Charter Communications is – like every other company Malone has a hold over – and how, like Virgin Media in the UK, it would be another relatively clean-governed firm falling under Malone's control. But then I looked at Time Warner Cable's board.
Time Warner Cable board a governance disaster
It's not a small board – at 13 – but its lack of independence is startling for a publicly owned firm -- widely owned by institutions, in fact. There are seven independent directors, a slim majority. Then there's the current CEO, the insider. Then there are six former executives. I can't think of a single other example of a firm in the S&P 500 that has this number or proportion of former executives sitting on the board, certainly not a supposedly public company like this one.
And we're not just talking any old former executives here. First there's the former CEO Glenn Britt himself who stepped down on Jan. 1, 2014, when Marcus took over. Then there's a former co-CEO of Time Warner, N.J. Nicholas (Time Warner Cable separated from Time Warner in 2009), a former general counsel, Peter Haje, a former CFO, Wayne Pace, and a former division chairman, Don Logan. How can such a board act independently and in the best interests of shareholders?
A Charter takeover will make the governance nightmare worse
The proposed deal – and this won't be the last bid, especially since it offers barely a premium over the current TWC share price – would end up with TWC shareholders owning 45% of the combined company. This is a significant figure, since Malone appears reluctant to allow anyone to own more of anything than he or his controlled companies does (see what I wrote about the Virgin Media deal here); and one that is only possible because of the cash/stock offer structure.
And that Charter board? Well, it wasn't too bad, with five directors as nominees of the major institutional shareholders – Oaktree, Apollo, Crestview – that could likely have been trusted to look after shareholder interests. But with John Malone's Liberty Media buying their interests out, that means that these directors are replaced by Malone himself, Gregory Maffei, Malone's CEO chum (about whom I've Fooled about earlier here), Nair Balan, and Michael Huseby.
What is the board of a combined TWC/Charter going to look like? Public shareholders, who are likely to have unequal voting rights, you'll not be surprised to hear, won't have a look in.