Analysis: Time Warner Cable's missed chances begin slide to takeover buzz

Thu Dec 19, 2013 6:16pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Liana B. Baker and Ronald Grover

(Reuters) - By some measures, it seems hard to find fault with how Time Warner Cable TWC.N has been run since it was spun off from its parent company, Time Warner Inc (TWX.N: Quote), in 2009.

Its stock price increased more than five fold and it returned more than $9 billion to its shareholders in dividends and stock buybacks, on top of a $10.9 billion dividend at the time of the split.

But in the process of rewarding its investors, the nation's second-largest cable operator may have become one of the industry's weakest performers. Leichtman Research Group estimates that over the past two years, the company lagged rivals by losing nearly 10 percent of nearly 13 million video customers.

In New York, its largest market, it's lost about 45 percent of its customers to Verizon's(VZ.N: Quote) three-year old video offering, according to MoffettNathanson research.

The result is the opportunity for cable billionaire John Malone to pursue a takeover, arguing new managers such as Charter Communications Chief Executive Tom Rutledge could do a better job running the company.

"They under-invested in their core video product and were super aggressive in capital returns which has done great things for their stock price but has left them in a poor competitive position," said Brean Capital analyst Todd Mitchell.

Malone, whose Liberty Media owns 27 percent-owned Charter Communications (CHTR.O: Quote), the country's fourth largest cable operator, is expected to make a bid to buy Time Warner Cable in the coming weeks. Comcast (CMCSA.O: Quote), the nation's largest cable operator, is mulling a bid as well.

How did Time Warner Cable, one of the industry's best performers only a few years ago, fall so far so fast?   Continued...

A cable truck returns to a Time Warner Cable office in San Diego, California December 11, 2013. REUTERS/Mike Blake