TWC - Time Warner Cable

[saltybit]

I'm relatively new to investing, and this is the first time I've owned a stock that is getting acquired by another company. (TWC)

 

Right now, TWC is trading at $178, Charter has agreed to acquire the company for ~195 per share.

TWC is trading below $195 most likely due to uncertainty of the merger going through.

 

Given the number of experienced investors on this board, I was wondering if there are some things you would do given that:

- TWC's price will jump if the merger goes through, and probably drop to around or below post-Comcast merger failure price

- I own TWC in a taxable account and sitting on ~ 20+% short-term gains.

 

Thanks!

[gfp]

The bid for TWC is for either $100 cash + .5409 CHTR shares or $115 cash + .4562 CHTR shares.  It is not a $195 cash bid, but is currently worth between $194 and $194.36 at current CHTR prices.  The spread is about 8.95% at the moment and the deal might take a year to close. 

 

I think CHTR's share price declined last week because merger arbitrage funds would be shorting CHTR stock to lock in the spread.  You should decide if you just want the spread or you want to continue being a shareholder of "new charter."  The value of your TWC shares could ultimately be much higher than $194 if CHTR stock performs well.  Malone thinks the deal is a 15-20% IRR type deal, and is obviously taking all stock - but you don't have an all stock option.  The merger is likely to be approved by regulators but the timing is uncertain.  Malone mentioned that he believed it would close earlier than many expect but who knows...  On regulator approval, it's helpful to invert and consider whether regulators would approve Time Warner Cable buying Charter and Brighthouse - I think the answer is yes.

 

In short, if you just want to lock in your spread, you would short CHTR against a portion of your TWC position.  Personally, I would bet on a higher CHTR share price long term and would hold the TWC unhedged and consider owning CHTR shares outright as well at the current share price.  Unfortunately you don't have an all-stock option, which would be my first preference.  I also own TWC and am doing nothing.

[junto.investing]

I think there is a good chance this goes through. Anyone who is a TWC client knows TWC currently leaves much to be desired. Not saying things will improve much under CHTR - but it won't be hard to make a strong argument.

 

On the downside, I don't know that it will go all the way back down to pre-Comcast talks. This industry is in a consolidation phase. One way or another TWC will participate.

[junto.investing]

The bid for TWC is for either $100 cash + .5409 CHTR shares or $115 cash + .4562 CHTR shares.  It is not a $195 cash bid, but is currently worth between $194 and $194.36 at current CHTR prices.  The spread is about 8.95% at the moment and the deal might take a year to close. 

 

I think CHTR's share price declined last week because merger arbitrage funds would be shorting CHTR stock to lock in the spread.  You should decide if you just want the spread or you want to continue being a shareholder of "new charter."  The value of your TWC shares could ultimately be much higher than $194 if CHTR stock performs well.  Malone thinks the deal is a 15-20% IRR type deal, and is obviously taking all stock - but you don't have an all stock option.  The merger is likely to be approved by regulators but the timing is uncertain.  Malone mentioned that he believed it would close earlier than many expect but who knows...  On regulator approval, it's helpful to invert and consider whether regulators would approve Time Warner Cable buying Charter and Brighthouse - I think the answer is yes.

 

In short, if you just want to lock in your spread, you would short CHTR against a portion of your TWC position.  Personally, I would bet on a higher CHTR share price long term and would hold the TWC unhedged and consider owning CHTR shares outright as well at the current share price.  Unfortunately you don't have an all-stock option, which would be my first preference.  I also own TWC and am doing nothing.

 

Great points. Completely agree that New Charter offers substantial value (I believe that is what you were implying). I've structured accordingly and am long LBRDA/K, CHTR, and TWC (in order of size).

[saltybit]

The bid for TWC is for either $100 cash + .5409 CHTR shares or $115 cash + .4562 CHTR shares.  It is not a $195 cash bid, but is currently worth between $194 and $194.36 at current CHTR prices.  The spread is about 8.95% at the moment and the deal might take a year to close. 

 

I think CHTR's share price declined last week because merger arbitrage funds would be shorting CHTR stock to lock in the spread.  You should decide if you just want the spread or you want to continue being a shareholder of "new charter."  The value of your TWC shares could ultimately be much higher than $194 if CHTR stock performs well.  Malone thinks the deal is a 15-20% IRR type deal, and is obviously taking all stock - but you don't have an all stock option.  The merger is likely to be approved by regulators but the timing is uncertain.  Malone mentioned that he believed it would close earlier than many expect but who knows...  On regulator approval, it's helpful to invert and consider whether regulators would approve Time Warner Cable buying Charter and Brighthouse - I think the answer is yes.

 

In short, if you just want to lock in your spread, you would short CHTR against a portion of your TWC position.  Personally, I would bet on a higher CHTR share price long term and would hold the TWC unhedged and consider owning CHTR shares outright as well at the current share price.  Unfortunately you don't have an all-stock option, which would be my first preference.  I also own TWC and am doing nothing.

 

Thank you, that was a good way of framing how to think about this.

[saltybit]

Nice post on the TWC/Charter merger https://oraclefromomaha.wordpress.com/2015/06/10/charter-communications-time-warner-cable-betting-big-on-the-us-cable-industry/