Charter Arranging Debt Package as It Pursues Merger With Time Warner Cable -- Update

By Gillian Tan and Shalini Ramachandran 

Charter Communications Inc. is in early talks with banks to arrange a debt package of $25 billion to $30 billion, as it pursues a merger with fellow cable operator Time Warner Cable Inc., people familiar with the matter say.

Charter is pursuing a friendly transaction with Time Warner Cable, after its offer last year was rejected and a hostile approach backfired. Charter has a second chance since Comcast abandoned its $45 billion merger with Time Warner Cable last month, and top executives close to Charter wasted little time in starting to reach out to Time Warner Cable management about an alternate transaction.

Meanwhile, Charter and Time Warner Cable each have approached smaller operator Bright House Networks about acquiring the company, people familiar with the matter have said.

The biggest hurdle of a Charter-Time Warner Cable deal, aside from the regulatory climate, is price.

In January 2014, Charter had proposed a takeover of Time Warner Cable at $132.50 a share in cash and stock. Before the ill-fated Comcast deal was struck, Time Warner Cable rejected Charter's proposal and said it would only be willing to accept $160 a share, with $100 in cash. Time Warner Cable shares closed Friday at $154.68.

The Wall Street Journal has reported that people close to Charter have made it clear the company doesn't want to make the mistake again of a lowball bid. They also said Charter is aware it will have to offer a significant portion of its bid in cash to satisfy Time Warner Cable's concerns about whether Charter stock is overvalued thanks to deal speculation.

Tom Eagan, an analyst at Telsey Advisory Group, said recently that if Time Warner Cable increased its asking price to $170 or $180 a share, that would greatly increase the debt of the combined company to "above the comfort level of some investors."

As Charter works with banks to line up the financing to make a new run at Time Warner Cable, its largest shareholder is also waiting in the wings to help out.

Liberty Broadband Corp. Chief Executive Greg Maffei said on Friday he plans to maintain Liberty's 25% voting stake in Charter in any transaction, and the company has a wide range of ways to raise capital to maintain the stake.

And if Charter needs to raise even more capital, Mr. Maffei said many potential partners have expressed interest in investing alongside Liberty.

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