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TWC’s Marcus balks at debt-fueled deals

Tue, 12/10/2013 - 12:23pm
Associated Press

Incoming Time Warner Cable Inc. CEO Rob Marcus said Monday that the company's current debt level is "prudent," even as other cable TV companies are reportedly examining adding debt to acquire it.

Marcus, the chief operating officer who will replace Glenn Britt as chief executive on Jan. 1, told an investor conference in New York that the company's target of having debt that is 3.25 times its cash flow is appropriate.

"There is speculation out there about what (merger and acquisition) would do to our (debt) leverage profile," he said at the UBS 41st Annual Global Media and Communications Conference in New York. "I believe that 3.25 times is a prudent level for us to maintain at this point."

His comments suggest that it could be difficult for suitor Charter Communications Inc. to mount an attractive offer to buy the company.

Charter is reportedly seeking a new debt package of $25 billion to finance its bid for Time Warner Cable.

According to FactSet, Time Warner Cable's net debt was 3.01 times as big as its earnings before interest, taxes, depreciation and amortization for the 12 months through last December. That compared to a higher ratio of 4.83 for Charter and just 1.02 for Comcast Corp., another potential suitor.

Rich Tullo, an analyst Albert Fried & Co., said Marcus' comments don't necessarily count Charter out. Besides potential cost savings, a combined company would also benefit from using net operating losses at Charter to potentially save billions of dollars in taxes — money that could be used to pay down debt.

"It's less (debt) leveraging than you think," he said. "I don't think it's excessive. It does mean the business has less flexibility."

Later at the same conference, Charter CEO Tom Rutledge said while his target debt ratio was 4 to 4.5, "if there was an opportunity we would go higher."

He also noted that adding large debt to a company is attractive at today's historically low interest rates.

"The ability to borrow large sums of money exists right now more than I've ever seen," he said.

Rutledge said that getting bigger would open up new opportunities for Charter, which has only 4.2 million video subscribers, compared to Time Warner Cable's 11.4 million.

"If you get to a certain size, there are opportunities in advertising, opportunities in programming, opportunities in large-scale telecommunications that really don't exist to individual companies at the scale we operate today," he said.

Charter shares closed up 41 cents at $128.16 on Monday while Time Warner Cable shares fell 56 cents to close at $130.44. Comcast shares fell 13 cents to $49.14.

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