Tuesday, February 11, 2014
So, rumors are flying that Charter will nominate its own slate for the Time Warner Cable board today. This is all part of the ongoing effort by Charter to get the board of Time Warner Cable to the table to negotiate a sale of the corporation. So far, TWC has said no and sat on its hands, as it's permitted to do. There is no legal requirement that a fully informed board must depart from its corporate strategy to accept an unsolicited offer, especially if the board believes it to be unwise.
TWC hasn't followed the Airgas 'just say no' route - adopt a poison pill and rely on its staggered board to hold off an unwanted suitor. It hasn't done this so far because frankly it can't. TWC doesn't have a staggered board. Its board is up for election every year. Because TWC can't rely on a staggered board to give it the time to defeat a proposal by Charter, it's vulnerable to a proxy fight. And without a staggered board, the poison pill isn't much of a defense.
And so no surprise that Charter's next move is the proxy contest. Charter is seeking to replace TWC's entire board through a proxy contest. If Charter were to win the contest, that would be a signal from TWC shareholders that they are in favor of a deal with Charter at $132.50. The new board would face no obstacle to quickly getting a friendly deal done. Of course, it's a long road between here and there. Lots of things can happen.
Some have said, well it's possible that shareholders vote out the incumbent board and the new board comes in and does an "Airgas" - that is, the new board decides not to pursue a deal with Charter. I find that scenario highly unlikely. Why? Well, when the short slate of three Air Products nominated directors entered the Airgas board room, the remaining board members were there and able to frame the questions and make all sorts of arguments why the Air Products offer was a bad idea for Airgas. Those arguments ultimately won the day when the Air Products nominated directors sided with incumbent board members.
If Charter were to succeed in its proxy contest, the board room atmosphere post-contest would be wholly different. First, the entire board would be brand new. There will be no one around the frame questions or argue against a Charter bid. If Charter learned anything from Airgas, it's probably that they have thoroughly quizzed their nominees and they are convinced that all of them think the acquisition of TWC by Charter is a good idea already. That's not to say as directors they won't seek to informed themselves before doing a deal, but where you starts affects where you end.
All this being said, I'm confident that Charter would be happier if the effect of the proxy contest were to force the incumbent board to the table to negotiate a friendly deal.