A number of Time Warner Cable shareholders would support a merger with Charter Communications Inc if Charter raises its current bid for the larger rival to $41 billion or more, according to people close to the matter.
Charter on Monday formally offered to buy Time Warner Cable for $132.50 a share, or $37.3 billion, based on shares outstanding. Time Warner Cable's board swiftly rejected that bid as "grossly inadequate" and said it was open to a sale at $160 per share.
Several large shareholders, including at least two of the company's top 10 investors, would back a sale to Charter in the $145 to $150 per share range - or roughly $41 billion to $42 billion - the people said on Wednesday.
The shareholders told Charter and Time Warner Cable that they would not accept Charter's current offer, said the people close to the matter, who asked not to be named because they were not authorized to speak to the media.
A Charter spokesman declined to comment while a Time Warner Cable representative did not immediately respond to a request for comment.
"(Time Warner Cable) has had a dialogue with the top holders. It's just a matter of price and $132.50 won't get it done," said one Time Warner Cable shareholder who asked not to be named.
The price Time Warner Cable shareholders would seek also depends on how much cash Charter would be willing to pay. It has offered $82.54 a share in cash and the rest in its own stock - a proposal that would give Time Warner Cable shareholders 45 percent ownership of the combined company.
Time Warner Cable has said it wants more cash and less Charter stock, and made a counterproposal - a Charter bid of $160 per share consisting of $100 per share in cash and the remainder in stock.
"Composition will count for much. A higher cash component could save Charter a few dollars in shareholders' eyes, especially given that there are uncertainties about the synergy level," said Steve Soranno, an equity analyst at Calvert Investment Management, which has $13 billion under management and owns Time Warner Cable shares.
Charter, backed by billionaire John Malone's Liberty Media Corp, estimates synergies of $500 million in the first year as a combined company with growth to $750 million over time, the company said on Tuesday.
Analysts, however, cautioned that savings would likely fall short because getting bigger would not necessarily help the combined company receive better programming rates from media companies than Time Warner Cable already gets.
Synergies from capital spending reductions, lower annual programming costs and other cuts in operating expenses are a key consideration for Time Warner Cable shareholders, as they would end up with a large proportion of the merged company's equity under the current proposal.
Charter has been attempting to buy Time Warner Cable for six months, but talks have not progressed, prompting Charter to appeal directly to shareholders. Charter's executives were in Boston on Wednesday meeting with Time Warner Cable investors as part of a roadshow.
Since the start of Charter's pursuit, Time Warner Cable shares have gained about 40 percent. On Wednesday, shares were trading above Charter's offer price, at $135.44.