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TWC’s Marcus Stands Firm Amid Bids, Jabs

CEO Names Price, Vows ‘We’re Not Negotiating’ 1/20/2014 7:32 AM Eastern

 

NEW YORK — Time Warner Cable chairman and CEO Rob Marcus has drawn a line in the sand.

As the rhetoric surrounding Charter Communications’ $132.50-per-share bid for Time Warner Cable heated up late last week — Comcast was approached by Charter to join in the bid — the new CEO at the No. 2 U.S. cable operator is standing firm.

“We were very explicit: We’re not negotiating,” Marcus said in an interview last Wednesday (Jan. 15). “$160 is what it takes to get anything done. And it’s not just $160. It’s $160 with $100 in cash and a 20% collar. [If] any of those elements are not there, then $160 is not interesting.”

In an in-depth interview at TWC’s New York headquarters overlooking Central Park, Marcus looked every part the confident chairman and CEO, passionate in his defense of his strategy and the cable operator’s prospects going forward.

Charter made its bid for TWC on Jan. 13, ending seven months of speculation concerning a deal. While TWC rejected the offer as “grossly inadequate,” it left the deal doors open by proposing the $160-per-share offering, including the cash and the collar, which would protect both parties in the event of a big drop in their share prices.

CRITICAL CALL

Charter responded to that counteroffer by holding an analyst conference call on Jan. 14 criticizing Time Warner Cable management. Officials with Stamford, Conn.-based Charter claimed the company is strategically adrift with plant in need of an overhaul.

“Time Warner Cable has a failed operational strategy,” Charter chief operating officer John Bickham said on the conference call. Later he pointed to the MSO’s loss of more than 800,000 video customers in 2013, adding he didn’t see any path to growing residential revenue outside of a “transformational event.”

In recent days, Charter approached Comcast about possibly joining it in the Time Warner Cable bid, with the larger MSO taking TWC operations in New York, Los Angeles or smaller markets, according to industry sources. Those discussions are in the very preliminary stages.

It’s unclear whether Comcast would participate before or after a deal is closed.

Other reports indicated that some TWC shareholders would accept an offer of between $145 and $150 per share, a price range that several analysts had said makes sense. But Marcus, in the interview, seemed steeled to a $160 per share price.

And while the press is preoccupied with pricing and potential deal partners, the real question to be answered in the Charter/Time Warner Cable saga is this: Who can run the company better? After Charter gave its answer in the Jan. 14 conference call, it was Marcus’ turn.

Marcus refused to attack his pursuers, but did vehemently defend Time Warner Cable’s strategy, adding that after a two-quarter bump in the road — during which it lost a total of 519,000 video customers — a bright light has appeared at the end of the tunnel.

Operationally, TWC has performed below its peers in the past several quarters, with basic-video losses increasing in each period from the previous year while other operators like Comcast and Charter have shown reduced losses. The losses came to a head in the third quarter, when TWC lost a total of 304,000 basicvideo customers in the wake of a monthlong blackout of CBS broadcast stations in New York, Los Angeles and Dallas.

The CBS hangover continued into the fourth quarter — Time Warner Cable preannounced that it lost 215,000 basic video customers and added 55,000 highspeed data and 15,000 phone subscribers in the period — but December showed signs of improvement.

Marcus pointed to TWC chief financial officer Arthur Minson’s presentation at the recent Citigroup Internet, Media & Telecommunications conference in New York, where he said the cable operator actually added 60,000 high-speed data customers and 17,000 phone subscribers in December.

HANGOVER LIFTS

“We clearly had a speed bump in the form of the CBS programming dispute, which threw what was otherwise building momentum off-kilter,” Marcus said. “After the initial part of the quarter, where we still suffered from the CBS hangover, we really saw a shift in terms of momentum of the business. December was a really good month.”

While the company has made some strides, others have wondered aloud whether turning the ship — in TWC’s, case a Supertanker — can be done successfully.

“In terms of turning the supertanker, the supertanker’s turned,” Marcus said. “Now the question is, how fast we can drive it in a new direction? Coming into this year, I feel good about where we sit. We’ve really got the groundwork laid for improving disconnects, retention is getting better, and we’re continuing to make strides on all fronts.”

This all has made for an eventful initiation for new chief operating officer Dinni Jain, the former Insight Communications and NTL operations chief who officially joined Time Warner Cable on Jan. 13, the day Charter launched its bid.

Under Jain’s watch, Insight grew video customers by nearly 140,000 between 2004 and 2009, mainly through an aggressive marketing approach and a focus on strong products and customer service.

While Jain said it is too early to tell what he will ultimately do at TWC — and added that one of the pitfalls for new executives is trying to incorporate what they did in their old jobs with their new companies — he said he has been impressed by what he has seen so far.

KEEPING FOCUSED

“I’ve been delighted by the focus here, in spite of everything that has been going on,” Jain said. “Many of the projects that are being worked on at Time Warner — and have been worked on starting back as early as 2012, which are coming to fruition now — are exactly the projects we were working on at Insight at the time that we sold, or [that] we wanted to [work on] but couldn’t afford to.”

While Jain said he plans on visiting each TWC region to get a first-hand sense of what the operations need, he said he believes the company is on the right track.

“If the things these guys are working on are allowed to come to fruition, the profile operationally of this company is very different,” Jain said. “The talk would change very rapidly.”

 

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