Source: Time Warner Cable
Although Time Warner Cable (NYSE: TWC) investors were understandably upset when the Federal Communications Commission denied the proposed Comcast merger, it may have been the best thing to happen to the company's stock. Last month, Comcast abandoned its attempt to buy Time Warner Cable for $45.2 billion amid FCC concerns regarding broadband Internet concentration.
Perhaps the biggest loser was Time Warner Cable CEO Rob Marcus, for whom the merger included an $80 million "termination fee," since Time Warner Cable no longer required a CEO post-merger. Good work if you can get it, as most released workers receive only a few months' salary, but Marcus did provide solid leadership. Early in his tenure, the company turned down an offer from Charter Communications to sell the company for $37.3 billion (excluding debt) and held out for Comcast's better offer of $45.2 billion.
And while a 21% acquisition price increase is admirable, it's possible Marcus may have left some money on the table. Although a formal deal is not on the table, it appears Time Warner Cable has another suitor. This time, the interest is from European telecom company Altice. That is, of course, if another American company doesn't beat it to the punch.
In one corner, John Malone
For Time Warner Cable investors, the best result would be a nasty bidding war between Liberty Broadband (LBRDA +0.71%) and its acquisitive chairman, John Malone, versus a man who's quickly becoming known as the European John Malone -- Altice's Patrick Drahi. When it comes to their outlook on the overall cable business, it appears the two men share a similar vision of the industry's future: consolidation.
If John Malone's Liberty Broadband attempted to buy Time Warner Cable, it wouldn't be the first time a company that represented his economic interests did so. Liberty Broadband owns a roughly 26% stake in Charter Communications, which tried to buy Time Warner Cable last year. (At the time, the Charter ownership stake was held by Liberty Media, but it was spun off as Liberty Broadband in late 2014.)
There are still three Liberty executives -- including Malone himself -- on Charter's board of directors. As a result, Charter would probably be John Malone's preferred vehicle for buying Time Warner Cable once again.
In the other, newcomer Patrick Drahi
In the other corner, Altice's Patrick Drahi appears to be interested in the U.S. cable market as well. The Wall Street Journal reports that the European company is planning to buy a majority stake in St. Louis-based privately owned cable provider Suddenlink in a deal the Journal estimates at $9.1 billion. And Altice shows no signs of stopping.
But that's perhaps the biggest problem for Altice: The company reportedly closed $31 billion in deals last year and may have problems funding an aggressive bidding war that may reach in excess of $50 billion.
Altice aims to have half of its revenue coming from the United States. The euro's slump against the U.S. dollar will make dollar-based revenues and profits more valuable to Altice -- at least initially -- but it also makes U.S. companies more expensive to purchase.
In addition, Altice's modus operandi of using highly leveraged purchases and then ruthlessly cutting costs could hurt Time Warner Cable, and the company faces powerful content partners determined to raise prices. In addition, the company already suffers from underinvestment in employees and infrastructure, leading the company to get the worst ACSI customer satisfaction rating among all subscription TV providers.
For Time Warner Cable investors, however, the renewed and growing interest hints at the fact that the company didn't successfully identify or evaluate all merger offers. Perhaps the next offer will add another 21% to Time Warner Cable's value, and CEO Rob Marcus will get his $80 million termination fee -- or more -- after all.
