TWC's Gains Alter Deal Prospects

   (FROM THE WALL STREET JOURNAL 5/2/15) 
   By Shalini Ramachandran 

Part of Charter Communications Inc.'s case for taking over Time Warner Cable Inc. has been that it could do a better job running its rival cable operator. First-quarter results from the companies didn't do much to advance that argument.

Charter, the fourth-largest U.S. cable operator, reported first-quarter earnings on Friday that some Wall Street analysts found disappointing, due in part to a surprise loss of 7,000 video customers, compared with a gain of 18,000 in the year-earlier period.

On an earnings conference call, Charter Chief Executive Tom Rutledge attributed the company's video customer decline in part to Charter's changeover to digital cable TV transmission from analog. He said that process is "very disruptive" to customers, though it reaps benefits in the end. Charter shares edged up at $187.43 Friday.

Meanwhile, Time Warner Cable on Thursday reported that it added video customers for the first time since 2009. The New York-based operator was struggling badly with subscriber losses in 2013 when Charter last tried to acquire it, but has since showed early signs of a turnaround, analysts said. Still, the company's profit fell on higher costs.

The dynamics between the companies have changed markedly, some analysts said. Charter is still viewed on Wall Street as a well-run company. But Time Warner Cable has gone from looking like a likely target two years agoto a company in the position to be an acquirer.

"Yesterday, Charter looked to have the inside track to begin its roll-up of the cable industry. Today, that's less clear," said Craig Moffett, analyst at MoffettNathanson LLC, in a research note Friday.

The companies are jockeying for advantage after Comcast Corp.'s merger with Time Warner Cable broke up. Charter has since been laying the groundwork for a Time Warner Cable bid, as well as holding preliminary talks with closely held Bright House Networks LLC, The Wall Street Journal reported Thursday. Time Warner Cable also has had preliminary talks with Bright House.

On the Friday call, Mr. Rutledge said "our focus was somewhat distracted" in the quarter by the Comcast deal -- since Charter was to acquire, swap and spin off some systems as part of that deal. Overall, Charter posted a loss of $81 million, or 73 cents a share, compared with a year-earlier loss of $37 million, or 35 cents a share.

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