As the cable sector has slogged
through one of worst economies
in decades, Time Warner Cable
shareholders have something
that some of their peers in the
industry do not: More money in
their pockets.
To a large extent, they have Rob
Marcus, TWC’s long-time chief financial officer, promoted last week
to president and chief operating
offi cer, to thank for it.
The industry — Time Warner
Cable included — has struggled
with subscriber losses, the threat
of cord-cutting and increased
competition.
Still, Marcus, as CFO of the second-
largest MSO in the country
(with 12.6 million subscribers),
has managed to find a way to issue
a $1.60 per share annual dividend
(a 3.7% yield, the highest in
the industry), and initiate a $4 billion
share-repurchase plan.
TWC has done that while lowering
debt — leverage plunged from
3.8 times cash flow in 2009 to 3.25
times in the third quarter of 2010
— and maintaining one of the
strongest free-cash-flow engines
in cable.
So far in 2010, Time Warner
Cable has generated about $1.6
billion in free cash flow, ahead
of last year’s nine-month tally of
$1.5 billion.
It’s on track to meet analysts’
full-year estimates of $2.3 billion,
a 20% increase.
What’s more, Time Warner Cable is one
of the best-performing stocks in the sector.
Company shares closed at $65.36 on
Dec. 10, up 58% from their opening price
on Jan. 4.
In contrast, Comcast stock has risen about
26% this year and Cablevision Systems is up
62%.
Wunderlich Securities media
analyst Matt Harrigan, who
has been critical of Time Warner
Cable’s revenue generating unit
performance in the past, had no
qualms about its financial structure
or performance.
“This is a very good leveraged
equity story,” Harrigan said,
meaning TWC has effectively managed
its debt to boost shareholder
returns at a time when borrowing
costs are low. “That is a good part
of the reason why the stock is up.”
Time Warner Cable’s success
this year stems from overall performance
of all its divisions and
more than 47,000 employees. But
Marcus has successfully juggled
operational and business needs
with stellar shareholder returns,
while increasing transparency and keeping
a keen eye on future growth.
That’s why he has been named Multichannel
News’ 2010 Executive of the Year.
“I think he realized early on that shareholder
allocation was meaningless unless it
was in size,” Collins Stewart media analyst
Tom Eagan said of Marcus. “He was definitely
an early proponent of making the dividend
a very meaningful dividend
and making the
buyback big also.”
Under Marcus’s watch,
Time Warner Cable has
“raised the bar” on capital
allocation, Eagan
said, something that
should rub off on the rest
of the sector.
“If you are going to
offer a dividend right now, it’s got to be
meaningful. If you’re going to offer a share
buyback right now, it’s got to be meaningful,”
Eagan said.
One danger of issuing a dividend is that
once a company does it, there is no turning
back. Investors look unfavorably on a company
that reduces or cancels those quarterly
payouts.
SETTING THE BAR
Marcus said he and the rest of Time Warner
Cable’s management are fully aware that
issuing a dividend sets expectations.
“There’s always a thought process you go
through,” he said. “What if the following really
bad things happen, what would that do
and should we be entering into these return
capital strategies in light of those potential
things?
“One of the elements of a buyback program which is critical is that, by its nature,
it’s flexible,” he said of buying back equity,
another potential use of capital to potentially
benefit shareholders. “So, if bad things were
to happen — or, alternatively, if opportunities
arise — you have the ability to slow down
the buyback program.”
A dividend also can be reduced or eliminated,
he said, but “you never initiate a dividend
with that prospect in mind. When we
initiated it we intended to keep it and we intended
to grow it.”
Over time, the plan is still to increase the
dividend, he said.
Beyond putting cash in shareholders’
pockets, a dividend sends a message to
TWC’s industry peers and to Wall Street.
“One of the reasons we chose to start returning
capital via a regular dividend was
because there is nothing more symbolic of
confidence in the business,” Marcus said.
“Given the history of cable and given the
fact in the past, prospects of free cash flow
kind of evaporated into additional spending
on the plant, we thought it was really important
to make a strong statement.”
NO EYESHADE
Though his title conjures images of green visor-
wearing number crunchers, Marcus had
practically no accounting background when
he first took the job as CFO.
He first became associated with Time
Warner Inc. at the company’s top outside law
firm, Paul, Weiss, Rifkind, Wharton & Garrison.
He was there for eight years before joining
Time Warner Inc. in 1998 as senior vice
president.
Primarily, he has been a dealmaker. One
with an enviable track record.
He helped create Time Warner Entertainment,
the complicated
and sometimes-controversial
partnership
with Toshiba, Itochu
and US West that
helped cover some of
the debt of the 1990
merger of Time Inc.
and Warner Communications.
He helped sell off a
handful of non-core
assets that brought in
billions of dollars of
needed cash into the
company.
He was one of the architects
of Time Warner’s
joint purchase,
with Comcast, of big
cable operator Adelphia
Communications,
for $17.6 billion.
And he helped unwind
TWE in 2006. In
the process, he helped
to create a separate
cable company, Bright
House Networks, which remains closely affiliated with TWC.
Marcus officially joined Time Warner Cable
in 2005, helped to engineer its separation
from parent Time Warner Inc. and, in 2008,
became CFO of the cable unit.
His appointment came as bit of a surprise
— because he was a dealmaker, not an accountant
— but that hint of an outsider’s perspective
has helped him along.
“It was not so much the deal training that
was helpful, but I think the elements that
gave rise to my being a successful deal person
helped me as I took on other responsibilities,”
Marcus said of his M&A experience.
“The risk that sometimes exists for deal
people is that they tend to fall in love with
the deals they’re doing. I always steered clear
of that. I think I always kept deals in perspective,
never caught deal fever.”
Eagan said that Marcus’ deal acumen and
his other experience have helped him.
“Having sat in on meetings with him, he
has a wide grasp of the issues, not just financial
but in terms of technical issues that are
happening and content issues that are happening,”
Eagan said. “He’s been with the
company awhile and he has a pretty wide
sense of the issues facing the company.”
UNIQUE PERSPECTIVE
UBS vice chairman and joint global head of
TMT investment banking Aryeh Bourkoff
has known Marcus for years. He said that
having that diverse background has given
Marcus a unique perspective.
“Rob has made a seamless transition from
M&A to becoming CFO,” Bourkoff said. “He’s
intellectually curious, straightforward and
honest, with a lot of integrity, and he has a
unique appreciation for being purely focused
on generating strong performance and
shareholder returns.”
One of Marcus’ goals when he became
CFO was to increase “transparency,” or make it easier for an investor
to really understand
the business.
That took on added
importance when
Time Warner Cable
made a clear separation
from Time Warner
Inc. in March 2009.
“When we separated
from Time Warner Inc., Glenn [Britt] challenged
us all and said this is our opportunity to
define ourselves,” Marcus said of the company’s
chairman and CEO. “We’re not just a cable
division of a bigger media and entertainment
conglomerate anymore. It was up to us to define who we are.”
Marcus said the company knew greater
transparency could help investors look beyond
the headlines, beyond basic subscriber counts
and rate increases. It also sought to counter the
perception that cable-industry disclosure was
rife with buzz words with little meaning.
“We tried to debunk that and go with
more plain-English categories,” Marcus said.
“We’ve tried to break out video revenue associated
with just the standard tiers of service
and layer on top of that how much we get out
of transactional VOD and pay services and
equipment, DVRs.
“We try to make our disclosure track the
things that I want to see on a regular basis
from our operations, on the assumption that
if I want to see it, it’s probably the way investors
want to look at the business, too.”
INFORMING INVESTORS
He said Time Warner Cable management
has tried to break the business into its component
parts — residential subscriptions,
commercial subscriptions and advertising.
“There is a fair amount of shared resources
that gives rise to those businesses,” he said.
“But to the extent we can share how much
revenue is allocated to each of those different
businesses, how much capital is being
invested in each of those different revenue
streams, that also helps investors get a feel
for what’s driving the business and what the
overall health of the business is.”
True transparency also means not sweeping
bad news under the rug.
That was evident earlier this year when
Marcus, at the Bank of America Merrill
Lynch Media conference in September,
touched off a mini-fi restorm by stating publicly
that third-quarter growth of “personal
service units” (a combination of basic
video, high-speed data and phone customers)
would be negative
for the first time
ever.
That disclosure
sent Time Warner
Cable’s stock down
about 5% ($2.47)
on Sept. 15 and
dragged down the
entire sector.
While some analysts
said that was not
a necessarily popular
move among the rest
of the industry — which also reported PSU
losses later in the period — for Marcus, it was
unquestionably necessary.
“Part of the transparency philosophy is
that you don’t run from difficult issues that
face the business,” he said. “When it became
clear to us that Q3 subscribers — and video
subs in particular — were going to be weak,
we didn’t hold back and wait for the earnings
call to disclose that. We got out ahead of it
and shared it with the investment community
right away.
“That is what you should expect to see
from us. That’s the pattern. Th ere is no benefit in sitting on bad news. It’s a fact of life and
what you try to do is develop sufficient credibility
that investors will be confident that
they know everything they need to know.”
Although his first responsibility is on the financial side of the house, finance touches just
about every part of the business. Marcus has
had a hand in everything from operational issues
to programming agreements.
On the latter, Marcus gives all the credit
to executive vice president and chief programming
officer Melinda Witmer, who
negotiated several favorable programming
deals for Time Warner Cable including its
January retransmission consent pact with
Fox Networks and its recent carriage agreement
with The Walt Disney Co., which included
a potentially lucrative online deal
with ESPN.
“Rob is the most gifted executive with
whom I have ever had the privilege to
work,” Witmer told
Multichannel News.
“Rob inspires confidence
in those that
work for him as well as
a desire to elevate their
game and drive success.
You always know
that Rob has your back
and I know, from personal
experience, that
it enables you to be
a much stronger and
more successful executive.”
Time Warner Cable
managed to do those
deals without the service
interruptions that
have increasingly become
a part of negotiations.
“Continuity of service
by itself is not victory,” Marcus said.
“You can always have continuity of service
by conceding to demands. The real success
is that Melinda has negotiated deals that
are good deals for us while at the same
time avoiding those bad outcomes for customers.”
At the same time, Marcus said that Time
Warner Cable is making moves to restructure
its programming packages, offering a
lower-cost tier — TV Essentials — for priceconscious
consumers and a higher-end
offering — Signature Home — aimed at customers
that want a “white glove” version of
service.
He added that the second-largest MSO
also is looking for ways to sell packages that
include high-speed Internet or phone, or
both, but don’t include video.
That’s to capture homes within the cable
footprint that either subscribe to another
pay TV provider or choose none at all.
MAXIMUM RETURN
“Our philosophy on this subject is very simple:
Our single most significant asset is our
physical infrastructure,” Marcus said. “We
pass somewhere on the order of 27 million
homes with our plant. The goal always is
that the maximal way to get return on that
plant is to try to sell something to every one
of those 27 million homes.”
Spoken like a true dealmaker. And one
who has not forgotten that every dollar of
profit is one that has the potential to be returned
to shareholders.
THE MARCUS TOUCH
Rob Marcus was Time Warner Inc.’s top dealmaker before
becoming CFO of Time Warner Cable in 2008. Here are a
few of the many deals that bear his distinct imprint:
■ Creating and then reworking Time Warner Entertainment, Time
Warner’s complex partnership with Toshiba, Itochu and US West
established initially to help pay down debt from the 1990 merger
of Time Inc. and Warner Communications;
■ Acquiring, with Comcast, Adelphia Communications for
$17.6 billion;
■ Selling Time Warner’s Warner Music Group division to a group led
by former Seagram CEO Edgar Bronfman in 2004, for $2.6 billion;
■ Selling TWI’s CD and DVD manufacturing division in 2003 for
$1.05 billion;
■ Selling TWI’s 50% of cable channel Comedy Central to partner
Viacom in 2003 for $1.225 billion.
■ Spinning off Time Warner Cable from Time Warner Inc., including a
$10.9 billion special dividend to shareholders (approximately $9
billion went to Time Warner Inc.).
■ Reducing leverage from 3.8 times cash flow as a result of the
special dividend to under 3.25 times.
■ Engineering Time Warner Cable’s first shareholder dividend at
$1.60 per share annually, representing a 3.7% yield, one of the
highest yields in the industry;
■ Initiating a $4 billion share buyback program.
ROB MARCUS: AT A GLANCE
Title: President and Chief Operating Officer, Chief Financial
Officer, Time Warner Cable.
Age: 45
Hometown: Merrick, N.Y.
Education: B.A., Brown University, 1987 (magna cum
laude); J.D., Columbia University law school, 1990 (Harlan
Fiske Stone Scholar and editor of the Columbia Law
Review).
Background: Joined Time Warner Cable in 2005 as
senior executive vice president, became CFO in 2008,
promoted to president and COO last week. Held various
senior-level positions at Time Warner Inc. since 1998.
From 1990-97, practiced law at Paul, Weiss, Rifkind,
Wharton & Garrison, where he was one of Time Warner
Inc.’s principal outside corporate lawyers. Currently
resides in Short Hills, N.J., with wife, Wendy, and their
four children.
SOURCE:Multichannel News research
