Charter Communications has discussed a $25bn financing package that would put weight behind its increasingly public battle to acquire rival cable-TV provider Time Warner Cable.
Charter, which has been circling its larger rival since the summer, has been in talks about debt financing for the deal with banks including Barclays, Deutsche Bank, Goldman Sachs and JPMorgan, according to people familiar with the process.
The discussions with the banks are continuing and have been running since July.
Charter, which is being advised by LionTree, the investment bank, and law firm Wachtell, Lipton, Rosen & Katz, has been working with Goldman Sachs to help put together an agreeable financing package, people familiar with the process added.
Charter, which has a market value of $14.1bn, needs to raise substantial funds to swallow Time Warner Cable, which had a market capitalisation of $38.6bn based on Wednesday’s closing price of $136.80 a share.
The company has implied that it would consider a premium bid from Charter.
However last week it emerged that executives at Time Warner Cable had approached Comcast, the Philadelphia-based cable-TV market leader, to ask it to make an offer that would rival Charter’s overtures.
Speculation about the consolidation of the fragmented US cable industry has been building for several months. Some industry executives, including Liberty Media’s John Malone, have advocated such deals, arguing that it would reduce costs and better position the industry to compete.
Cable operators are facing increased pressure in their video businesses from so-called cord cutting, as customers cancel pay-TV subscriptions in preference for cheaper online streaming options, such as Netflix. At the same time, the industry is battling against satellite TV and phone companies.
Some cable executives believe that consolidation also could help television distributors in their battle with programmers over fee increases.
“The fact that Charter plans to finance this deal with debt increases the odds that the coming consolidation will drive cost-cutting in service, infrastructure and content,” said Barry Parr, a media analyst with Outsell.
But Craig Moffett, an analyst with Moffett Nathanson, cautioned that while the logic of industry consolidation was clear, the possible synergies may not be as great as many expected.
He said that a Charter-Time Warner Cable deal would result in a highly leveraged combined entity, placing large demands to “run the business better”. “You are taking on significant risk if you are Charter’s board and Liberty,” he said this week.
In reference to Charter’s emergence from bankruptcy, after seeking protection in 2009, he added: “One would guess that paying too much would be something that they would be sensitive about.”
Time Warner Cable shares have climbed almost 47 per cent since the start of the year as a result of expectations of a bid.
All parties involved declined to comment.
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