How tiny Charter can afford to buy Time Warner Cable

Paddy Hirsch Nov 22, 2013

Time Warner Cable looks like the tastiest cake on the plate in cable land right now. Both Comcast and Charter Communications are salivating at the prospect of gobbling up their rival, and investors reckon a merger could happen sooner rather than later.   

This wouldn’t be a problem for Comcast. The company is valued at roughly $130 billion, while Time Warner is valued at just $37 billion. So Time Warner will look like a petit four in a fat man’s fist if Comcast picks it up.

From Charter Communication’s point of view, however, Time Warner looks like a four-tier wedding cake. Charter is valued at just $14 billion. How is it going to swallow a company double its size? And how is it going to pay for it?

Using private equity, that’s how.

Private equity used to be known as the leveraged buyout business. That is, using huge amounts of leverage, or borrowed money, to buy companies far bigger than you. And Charter is no stranger to leverage or private equity. In 2009 the company went bankrupt with $20 billion in debt, after using borrowed money to finance a stream of acquisitions.

So you could argue that Charter knows exactly what it’s doing, and that it fully understands the risks of borrowing billions to chase down a much bigger competitor. And that just might make its bid to swallow Time Warner a success.

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