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BUSINESS
Securities and Exchange Commission

Charter urges TWC shareholders to reject Comcast merger

Roger Yu
USA TODAY

Charter Communications, which lost to Comcast in a bid to buy competitor Time Warner Cable, hasn't given up.

A silhouetted coaxial cable with the Comcast logo in the background.

In a proxy statement filed with the Securities and Exchange Commission Friday, the Stamford, Conn.-based pay-TV provider urged TWC shareholders to vote against TWC's plans to merge with Comcast in a $45 billion deal. Charter said its bid was competitive and warned TWC shareholders that a merger review involving Comcast could be prolonged and contains financial and operational risks.

TWC and Comcast announced on Feb. 13 that they've signed an agreement, in which Comcast pays 2.875 of its shares to TWC shareholders to combine the nation's two largest cable companies. The companies' respective board of directors approved the all-stock agreement, which then valued TWC shares at a value of $158.82 per share. Current TWC shareholders will own about 23% of Comcast's common stock if the deal is approved and closed.

"We are fully committed to our merger with Comcast, which we believe is in the best interests of shareholders," TWC said in a statement Friday.

Comcast declined to comment.

Prior to the merger announcement, Charter sent a letter to TWC on Jan. 13 to propose a cash-and-stock transaction valued "in the low $130s for each share of TWC common stock," Charter said. In the Friday filing, Charter said Comcast's offer amounts to $141.16 per TWC share based on the closing price of Comcast stock on March 27.

With consumers' TV viewing habits evolving rapidly, cable companies are seeking to get larger in size and resources to push into new technology, gain leverage against content providers and retain pricing powers. John Malone, chairman of Liberty Media, the largest shareholder of Charter, has been pushing for an acquisition for years and was the chief catalyst in Charter's pursuit of TWC.

"Post-merger, Comcast would control nearly 40 percent of the broadband market, around 33 million TV subscribers and a major programmer in NBC Universal," Charter wrote, acknowledging Comcast's willingness to divest 3 million subscribers if the merger is approved.

Given the likely thorough review by federal regulators, the merger approval process may drag on to 2015 and TWC stockholders "bear the risk of TWC's operating results under the effects of a pending transaction," Charter wrote.

TWC's review of Comcast's bid also was "flawed" because of "the failure of the TWC board of directors to consider and investigate alternatives," Charter wrote. "The TWC board simply refused to meaningfully engage with Charter regarding a potential business combination even after deciding to pursue a transaction with Comcast."

The Comcast agreement "does not even include a regulatory breakup fee provision in the face of a hazardous regulatory process, and at the same time removes TWC's ability to explore other potential business combinations," it said.

Charter also urged TWC shareholders to more closely assess Comcast's commitment to divest 3 million subscribers to appease regulators. Comcast may sell the asset at a discount to speed the merger review, and any savings the combined company may squeeze from the integration may be offset by the sell-off, Charter said.

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