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WHEN: Today, Tuesday, January 14th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Thomas Rutledge, Charter Communications President & CEO. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000235552.
All references must be sourced to CNBC.
DAVID FABER: WELCOME BACK. CHARTER COMMUNICATIONS CONTINUES ITS PUSH FOR CABLE CONSOLIDATION TRYING TO GET TIME WARNER CABLE TO COME TO THE NEGOTIATING TABLE TO TALK A DEAL. JOINING ME NOW IN AN EXCLUSIVE INTERVIEW IS CHARTER COMMUNICATIONS CEO TOM RUTLEDGE. TOM, THANKS FOR MAKING THE TRIP DOWN HERE FROM CONNECTICUT.
THOMAS RUTLEDGE: THANK YOU, DAVID, GLAD TO BE HERE.
FABER: TIME WARNER CABLE SAYS HEY, WE'VE BEEN TO THE TABLE WITH YOU GUYS AND WE GAVE YOU AN OFFER – IT WAS $160 A SHARE, ABOUT EIGHT TIMES OUR FORWARD EBITA AS WE SEE IT FOR THIS YEAR. THAT'S WHAT DEALS GET DONE AT. PAY 160 BUCKS A SHARE AND WE'RE YOURS. WHY NOT DO THAT?
RUTLEDGE: WELL, FOR ONE, WE'VE BEEN AT THIS QUITE A WHILE AS YOU KNOW AND WHEN WE FIRST APPROACHED THEM, MORE THAN SIX MONTHS AGO, THEIR STOCK WAS TRADING ABOUT $96 AND IT'S ALMOST RUN UP 40% SINCE WE INITIALLY APPROACHED THEM. AND WE THINK THAT WE'VE BEEN AT THIS PROCESS A WHILE. WORKING TOWARD THE PRICE THAT WE'VE GOTTEN TO. AND THAT IT'S A RICH AND FAIR OFFER.
FABER: WHY IS $132 LET'S CALL IT THAT A RICH AND FAIR OFFER? THEY SAY IT'S SEVEN TIMES. THEY POINT OUT BY THE WAY THAT CHARTER TRADES AT 9.2 TIMES EBITA, NOT TO CONFUSE PEOPLE, BUT A HIGHER MULTIPLE THAN YOU'RE WILLING TO PAY TO TAKE CONTROL OF THAT COMPANY. WHY DOES THAT SEEM FAIR?
RUTLEDGE: WHEN YOU THINK ABOUT WHAT'S BEEN GOING ON, SINCE WE STARTED TALKING TO TIME WARNER CABLE THEY'VE LOST MORE THAN A HALF MILLION CUSTOMERS. IT'S A TROUBLED SITUATION. AND WE THINK WHEN YOU LOOK AT THE CASH COMPONENT THAT WE'RE BRINGING, WHEN YOU LOOK AT THE APPRECIATION THAT WE'VE ALREADY PUT INTO THE STOCK THROUGH THIS PROCESS, AND YOU THINK ABOUT THE FACT THAT AS PART OF OUR OFFER WHICH IS NOT AN ALL-CASH OFFER, 45% OF THE COMPANY WILL STILL BE OWNED BY TIME WARNER SHAREHOLDERS, SO THOSE SHAREHOLDERS ARE GOING TO PARTICIPATE IN THE SYNERGIES THAT WE DELIVER. THEY'RE GOING TO PARTICIPATE IN THE NOLs THAT WE BRING TO THEM.
FABER: NET OPERATING LOSS THAT YOU BRING TO PROTECT PROFITS.
RUTLEDGE: THAT'S RIGHT. AND THEY'RE GOING TO PARTICIPATE IN A TURNAROUND SITUATION THAT IMPROVES THE OPERATION OF THE COMPANY, STOPS THE SUBSCRIBER LOSSES, IMPROVES THE CUSTOMER SERVICES AND CREATES MORE VALUE THAN THEY WOULD GET WITH A PURE CASH OFFER.
FABER: YOU KNOW, I'VE SPOKEN TO SOME OF THOSE SHAREHOLDERS. WHO AGREE IN MANY WAYS WITH MANY OF THE THINGS THAT YOU JUST SAID BUT NOT AT $132 OR $135 A SHARE, AT LEAST THAT'S WHAT THEY TELL ME. THEIR EXPECTATION IS THAT IF YOU TRULY WANT TO OWN THIS COMPANY IT MAY NOT BE $160 BUT IT'S GOT TO BE A LOT UP FROM HERE. ARE YOU WILLING TO GO HIGHER?
RUTLEDGE: YOU KNOW, WE FEEL LIKE WE'VE COME A VERY FAR WAY AND WE'VE WANTED TO SEEK ENGAGEMENT FROM THE COMPANY. WE HAVE NOT REALLY GOTTEN ENGAGEMENT. I THINK THAT THEIR $160 RESPONSE IS A NONSERIOUS RESPONSE.
FABER: WHY IS THAT A NONSERIOUS RESPONSE? AGAIN, IT'S A HUGE COMPANY, L.A., NEW YORK, 11 MILLION SUBS. WHY WOULDN'T YOU, IF YOU WERE THEM, SAY, HEY, YOU WANT US, YOU GOT TO PAY THE NICE PRICE?
RUTLEDGE: WELL YOU KNOW, NEW YORK AND L.A. IS RIGHT, BUT, YOU KNOW, IN THE LAST TWO YEARS THEY'VE LOST THE EQUIVALENT OF AN L.A. IN SUBSCRIBER LOSSES. SO, THERE'S A BIG JOB TO BE DONE IN TERMS OF TURNING IT AROUND AND THAT PROCESS IS GOING TO COST MONEY. IT'S GOING TO REQUIRE INVESTMENT. IT'S GOING TO REQUIRE TAKING THE COMPANY ALL DIGITAL. AND IT'S AN ENORMOUS AMOUNT OF WORK. SO, THE OTHER THING THAT YOU NEED TO CONSIDER IS THAT MOST OF THE CABLE DEALS THAT HAVE BEEN DONE HAVE BEEN DONE AS ALL-CASH DEALS. WHEN YOU LOOK AT THE AFTER-TAX EFFECT OF OUR OFFER, IT'S ACTUALLY HIGHER THAN MOST OF THE CABLE DEALS, IN FACT, ALL THE CABLE DEALS THAT HAVE BEEN DONE IN THE LAST FIVE YEARS, SO IT IS A RICH OFFER WHEN LOOKED AT IN AN AFTER-TAX ENVIRONMENT.
FABER: WE KEEP REFERRING TO IT AS AN OFFER. REALLY WHAT YOU SENT YESTERDAY WAS A LETTER THAT REFERRED TO CONVERSATIONS WHERE YOU'D MADE AN OFFER AND YOU HAVEN'T.
RUTLEDGE: WE HAVE MADE OFFERS.
FABER: YOU HAVE MADE OFFERS. ALTHOUGH YOU DON'T SEEM TO HAVE ACTUALLY – I DON'T WANT TO GET CAUGHT UP INTO THE SEMANTICS OF IT.
RUTLEDGE: THAT'S RIGHT. BUT, WE – I VERBALLY OFFERED.
FABER: WHY NOT HAVE OFFERED A FIXED RATIO, FOR EXAMPLE? WHY NOT HAVE OFFERED SOME SORT OF A COLLAR ON THE STOCK COMPONENT? WHY NOT HAVE GIVEN US SOMETHING YESTERDAY THAT WAS A LITTLE MORE SPECIFIC IN TERMS OF DELIVERING VALUE?
RUTLEDGE: WELL, I THOUGHT IT WAS FAIRLY SPECIFIC. BUT WHAT WE'RE REALLY SEEKING TO DO IS TALK TO THE SHAREHOLDERS AND GET THE SHAREHOLDERS INVOLVED AND ASK THE SHAREHOLDERS TO LET MANAGEMENT ENGAGE WITH US. BECAUSE THEY REALLY HAVE NOT ENGAGED. AND THE BOARD HAS NOT ENGAGED. AND THE ISSUE BEFORE US IS THAT WE'VE COME THROUGH THIS PROCESS FOR SIX MONTHS. WE HAVEN'T BEEN TREATED SERIOUSLY. WE HAVE A VERY GOOD OFFER THAT WILL CREATE A LOT OF VALUE FOR SHAREHOLDERS. WE'RE SEEKING ENGAGEMENT.
FABER: THE BOARD HAS ENGAGED WITH ITS ADVISERS I CAN TELL YOU THAT AS SOMEBODY WHO'S BEEN FOLLOWING IT CLOSELY. THEY SEEM TO BE VERY SOLIDLY BEHIND THE IDEA THAT IT'S WORTH A LOT MORE. ARE YOU WILLING TO GO TO A PROXY FIGHT, THE WINDOW FOR WHICH OPENS NOMINATING DIRECTORS NEXT WEEK?
RUTLEDGE: WELL, WE'RE NOT THERE AT THE MOMENT. WE'RE MAKING THIS OFFER TO SHAREHOLDERS AND ASKING SHAREHOLDERS TO GET INVOLVED. ALL OF OUR OPTIONS ARE OPEN. BUT WE THINK THAT IF THE SHAREHOLDERS LOOK AT THE OFFER THAT WE HAVE AND ASK MANAGEMENT TO ENGAGE, THAT THE SHAREHOLDERS WILL RECOGNIZE THAT THE OFFER IS A GOOD OFFER AND THAT IT ACTUALLY CREATES MORE VALUE THAN THE ALTERNATIVES.
FABER: BUT, YOU KNOW, YOU KEEP SAYING IT'S A GOOD OFFER. I MEAN, YES, THE STOCK IS UP FROM $96, NO DOUBT. BY THE WAY, YOUR STOCK IS UP SHARPLY. COMCAST PARENT OF OUR NETWORK IS UP SHARPLY. THE WHOLE GROUP IS UP, SO THEY DON'T SEE DOWNSIDE TO $96. THEY SAY, WELL, MAYBE IF THERE'S NO BID AND THE STOCK'S $115, $120, WHY WOULD WE TAKE SUCH A SMALL PREMIUM ON THAT AS AN UNAFFECTED STOCK PRICE?
RUTLEDGE: WELL, I'M NOT SURE I AGREE WITH THAT. I THINK TO SOME EXTENT TIME WARNER'S PERFORMANCE IS AN OUTLIER. IN FACT, IT IS AN OUTLIER. ITS DISTINCTLY NEGATIVE. AND SO IT SHOULDN'T TRADE AT THE SAME MULTIPLE AS THE REST OF THE INDUSTRY UNTIL IT'S FIXED.
FABER: WHAT DO YOU DO FROM HERE? I HAVE TO TELL YOU TOM, IN HEARING YOU SAY, OK WE THINK THIS IS A FULL AND FAIR OFFER. YOU'RE NOT GOING TO WIN AT $132. I'LL PUT MY 27 YEARS OF EXPERIENCE BEHIND THE FACT THAT YOU'RE NOT GOING TO WIN AT $132.
RUTLEDGE: WE THINK IF THE SHAREHOLDERS LOOK AT THE OFFER THAT WE'VE MADE, THAT THEY WILL COME TO A DIFFERENT CONCLUSION THAN YOU DO.
FABER: THEY SAY -- THIS IS THE ADVISERS THAT I'M SPEAKING TO, TO TIME WARNER CABLE THAT YOU COULD GO UP TO AS MUCH AS $110 A SHARE IN CASH. THAT YOU COULD BORROW THAT MUCH MONEY. IS THAT TRUE?
RUTLEDGE: WE CAN BORROW MONEY. IT IS TRUE. AND -- BUT YOU HAVE TO THINK ABOUT THIS DEAL FROM THE CHARTER SHAREHOLDER PERSPECTIVE AND THE TIME WARNER SHAREHOLDER PERSPECTIVE. THE COMPANY -- WE HAVE A FAST-GROWING COMPANY AND WE'VE TURNED IT AROUND. AND IT'S TAKING OFF. AND THE REASON THE SHARE PRICE IS HIGH IS BECAUSE THERE'S A LOT OF POTENTIAL VALUE IN THE COMPANY THAT'S GOING TO BE CREATED. SO, WHEN YOU THINK ABOUT CHARTER SHAREHOLDERS WITH A FAST GROWING STOCK AND A VALUABLE STOCK, HOW DO WE MANAGE THE CHARTER SHAREHOLDER ACCRETION AS WELL AS THE TIME WARNER CABLE SHAREHOLDER ACCRETION. YOU'VE GOT TO MANAGE BOTH. SO WE HAVE TO BE DISCIPLINED ABOUT WHAT WE DO. WE DON'T NEED AN M&A DEAL TO MAKE CHARTER SUCCESSFUL. WE'RE ON A SUCCESS TRACK ALREADY.
FABER: RIGHT. WHAT ABOUT COMCAST, AGAIN, THE PARENT OF OUR NETWORK? MY UNDERSTANDING IS THAT CHARTER AND COMCAST HAVE TALKED. TALKED IN GENERAL ABOUT THE INDUSTRY AND CONSOLIDATION. THEY'RE STILL OUT THERE. THEY'RE STILL LOOKING AT THIS SITUATION. WOULD YOU CONSIDER MAKING THEM YOUR PARTNER? HAVE YOU SPOKEN TO COMCAST ABOUT SOME SORT OF A WAY TO GO ABOUT ACQUIRING TIME WARNER CABLE?
RUTLEDGE: WELL, IT'S TRUE, WE TALKED TO COMCAST ALL THE TIME BECAUSE WE'RE IN THE SAME BUSINESS. BUT THIS DEAL, THIS OFFER, IS CHARTER ALONE.
FABER: OF COURSE.
RUTLEDGE: AND THAT'S OUR OFFER. THAT'S WHAT WE'RE HERE TO TALK ABOUT. WE'RE NOT HERE TO TALK ABOUT ANY POTENTIAL OTHER OFFERS.
FABER: HAVE YOU TALKED TO COMCAST, THOUGH, AT ALL TO TRY TO SIDELINE THEM? BECAUSE THEY SEEM TO BE A POTENTIAL THREAT HERE, NOT TO MENTION THEIR POTENTIAL WILLINGNESS TO PARTICIPATE KEEPS TIME WARNER CABLE STOCK PRICE FAIRLY HIGH.
RUTLEDGE: IT MAY. AND OBVIOUSLY THEY HAVE POTENALITY. BUT, AGAIN, THIS ISN'T ABOUT THEM. THIS IS OUR PROPOSAL TO TIME WARNER SHAREHOLDERS AND WE'RE TRYING TO GET TIME WARNER SHAREHOLDERSES TO CONSIDER OUR PROPOSAL.
FABER: YOU HAVE A LARGE SHARE HOLDER IN LIBERTY.
FABER: THEY HAVE BEEN FAIRLY ACTIVE AS WELL IN THIS EFFORT AT LEAST, MEETINGS IN DENVER WITH LARGE SHAREHOLDERS OF TIME WARNER CABLE. ARE YOU GUYS ALL ON THE SAME PAGE? WHO IS LEADING THE CHARGE HERE?
RUTLEDGE: CHARTER IS THE COMPANY LEADING THE CHARGE. I MEAN, IT'S OUR COMPANY. LIBERTY MEDIA'S A MAJOR SHAREHOLDER WITH 27% OF THE SHARES, BUT ULTIMATELY THE WHOLE BOARD OF CHARTER HAS MADE THIS DECISION AND IS BEHIND THIS DECISION TO GO FORWARD WITH THIS OFFER. OBVIOUSLY HAVING A SOPHISTICATED INVESTOR LIKE LIBERTY MEDIA WITH JOHN MALONE AND GREG MAFFEI IS A PLUS. THEY KNOW THIS BUSINESS INSIDE OUT, THEY KNOW WHERE THE VALUE IS AND THEY'VE TALKED UP THE VALUE OBVIOUSLY. AND CLEARLY THE WHOLE INDUSTRY IS LOOKING AT CONSOLIDATION AND VALUES HAVE RISEN SINCE CONSOLIDATION HAS BEGUN TO BE DISCUSSED, SO THEY REALLY CONTRIBUTED TO THE WHOLE RISE IN VALUE IN THE WHOLE INDUSTRY AND THAT'S APPRECIATED. BUT ULTIMATELY THIS IS A CHARTER MOVE.
FABER: AND IF THIS DOESN'T HAPPEN, DOES THE ENTIRE INDUSTRY SUFFER AND EVERYBODY'S STOCK PRICE GO DOWN?
RUTLEDGE: WELL, I DON'T THINK SO. I THINK THAT CHARTER IS ON A GROWTH TRAJECTORY. I THINK WE HAVE AN EXCITING FUTURE AND GREAT POTENTIAL. AND SO, YOU KNOW, OBVIOUSLY STOCKS GO UP AND DOWN FOR A VARIETY OF REASONS, BUT ULTIMATELY IT'S ABOUT CREATING VALUE AND THAT'S WHAT WE'RE DOING.
FABER:TOM, VERY MUCH APPRECIATE YOU TAKING THE TIME TO COME DOWN HERE. OF COURSE WE WILL BE FOLLOWING THIS CLOSELY.
RUTLEDGE: GREAT. THANK YOU.
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