Charter’s Time Warner Cable Bundle is No Bargain

Liberty Broadband Chairman John Malone’s vision of spearheading cable consolidation through his company’s investment in Charter Communications may finally be coming to fruition.

Charter’s bid for Time Warner Cable represents a 14% premium to May 22’s closing price, valuing Time Warner Cable at $78.7 billion, including debt. That equates to nearly nine times 2016 earnings before interest, taxes, depreciation and amortization. Charter also said it was buying closely held Bright House Networks for $10.4 billion. Charter’s own market capitalization is about $20 billion. Charter’s decision to pay up owes something to the fact that shareholders have bid up its own shares, largely in anticipation of a deal. Charter should benefit when it comes to purchasing programming from media companies. Costs for each of its own subscribers and those of Bright House should fall toward the lower rates paid by Time Warner Cable. Still, even factoring in the $800 million in annual synergies Charter says it can achieve, it is paying 8.3 times Ebitda for Time Warner Cable, according to MoffettNathanson. That is 26% higher than the company’s five-year average. Indeed, excitement about consolidation has pushed up prices across the board for cable assets.