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- Charter Communications acquired Time Warner Cable in May 2016 in a deal valued at $78.7 billion. - The acquisition enhanced Charter's competitiveness by making it one of the largest television providers in the US alongside Comcast, AT&T, and Verizon. - It also provided an opportunity for Time Warner Cable to improve its poor customer satisfaction ratings.
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TWC
- 1. Time Warner Cable Acquired by Charter Communication Seung Ryul Lee Michael Cruz Congyi Liu
- 2. Agenda ● Background Overview ● Valuation Approaches ○ Discounted Cash Flow ○ Comparable Company Multiples ○ Comparable M&A Multiple ● Summary ○ Final Valuation ○ Real Deal ● Questions
- 3. Background Overview ● May 18, 2016 – Charter Communications, Inc. (Nasdaq: CHTR) closed its previously announced acquisition with Time Warner Cable Inc. (“TWC”) ● The most obvious incentive for this giant acquisition is enhancing competitiveness. ○ The newly enlarged Charter is now one of the biggest television providers in the country, standing alongside Comcast , AT&T and Verizon. ● From TWC’s standpoint, this deal could give them a chance to flip over the terrible impression of customers. ○ All-time-lowest score of the survey from the American Customer Satisfaction Index in June, 2015.
- 4. DCF Valuation Market Assumptions: Risk free rate 1.84% Market risk premium 5.50% Equity Assumptions: Average unlevered beta 0.89 D/E ratio TWC 0.38 Levered beta TWC 1.10 Cost of Equity 7.87% Debt Assumptions: Pre-tax cost of debt 6.42% Effective tax rate TWC 38.30% After-tax cost of debt 3.960% Corporate Assumptions: Market value of equity(M) $59,640 Book value of debt(M) $22,492 Price per share($) 209.56 Outstanding shares(M) 284.6 WACC 6.80% WACC:
- 6. Comparable Company Multiples ● 10 companies with market cap $10B- $75B ● Average : $ 71,703 M Revenue EBITDA EBIT 23,697 8,085 4,389 EV/Revenue 2.5x 58,769 EV/EBITDA 10.1x 81,982 EV/EBIT 16.9x 74,360 Name EV/ Sals EV/ EBITDA EV/ EBIT CBS CORPORATION 2.42 11.71 12.8 CHARTER COMM, INC. 6.88 20.6 68.39 DISH NETWORK 2.54 11.3 15.69 LIBERTY GLOBAL PLC 3.92 9.02 31.8 SFR Group 2.61 8.22 32.1 SKY PLC 1.67 10.23 20.2 TIME WARNER INC. 3.26 11.27 12.28 VIACOM INC. 2.15 9.81 10.67 Vivendi 1.93 9.77 13.45 Median 2.48 10.14 16.94
- 7. Comparable M&A Multiple Revenue EBITDA EBIT 23,697 8,085 4,389 EV/Revenue 2.4x 57,228 EV/EBITDA 13.6x 109,760 EV/EBIT 11.7x 51,236 Name EV/ Sales EV/ EBITDA EV/ EBIT Directv 1.9x 8.0x 11.7x Webzen inc 2.5x 7.7x NA Gameloft Inc 2.4x 80.3x NA Activision Blizzard 5.9x 19.2x NA Median 2.4x 13.6x 11.7x ● 4 companies acquired in Q1 2016 ● media/ digital media industry, publish/ distribute content ● Average : $ 72,742 M
- 8. Final Evaluation ● Comparable companies/mergers not entirely perfect ● High estimate depends on Net Neutrality legislation ● Low estimate depends on optimistic business revenue growth
- 9. Real Deal ● Charter acquired TWC for $195.71 per share with $100 in cash and $95.71 in New Charter stock, equivalent to 0.5409 Charter shares. ● This offer equates to TWC enterprise value of $78.7 billion, which are $56.7 billion equity valuation plus $22.7 billion net debt, less $0.7 billion equity investments. ● For the multiples been used, the enterprise value over estimated EBITDA is 8.3, while after being adjusted for synergies and tax benefits, 9.1 was utilized for the final multiples.