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Merger speculation is propelling TWC stock price up 45%

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Speculation about a potential purchase of Time Warner Cable (NYSE: TWC) by Comcast Corp. (Nasdaq: CMCSA), Charter Communications (Nasdaq: CHTR) or Cox Communications is causing the company's stock to soar. According to Craig Moffett of MoffettNathanson Research, the company's stock has increased in price 45 percent over the last six months. On Friday, TWC's stock closed at $138.22.

In a research note, Moffett said that because of TWC's rising stock price, a potential buyer, such as Charter, Comcast or Cox, will have to pay $150 a share or more to buy Time Warner Cable, which is too much. Moffett said he doesn't believe the price should be more than $120 a share and his target price for the stock is $108.

Moffett cautioned that Time Warner Cable is not doing that well and is using "outsized broadband price increases to paper over otherwise terrible operational performance." He said that any synergies between Time Warner Cable and its potential buyer would not be that great (he estimated about $12 per share in synergies) and cautioned that overpaying for Time Warner Cable would be perilous to a potential acquirer.

So which company is likely to pursue Time Warner Cable? Moffett said if Cablevision acquired Time Warner, it will likely face regulatory costs that would diminish the value of the acquisition. He also said that if Cox, Comcast and Charter tried to divvy up Time Warner Cable, that would also diminish synergies but it would also eliminate any potential bidding war. Last week Bloomberg reported that executives at Comcast and Charter Communications were holding preliminary talks aimed at acquiring Time Warner Cable, which could help each operator expand cable system clusters in Los Angeles, New York and other markets.

 For more:
- see this Deadline article
- see this MoffettNathanson Research report (sub. req.)

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