Most of the media reports over the past few weeks had argued that Philadelphia-based Comcast would join forces with John Malone’s Charter Communications (CHTR) to buy Time Warner Cable, the country’s second-largest cable company. In turn, it would buy Time Warner’s crown jewel — its operations in New York and Los Angeles.
Time Warner Cable, however, wasn’t too keen joining forces with Malone.
Indeed, CNBC’s David Faber and others have noted that Comcast CEO Brian Roberts was reluctant to buy the whole of Time Warner Cable out of fear of running afoul of the Federal Communications Commission. Executives at TWC, though, managed to allay Roberts’ concerns … but it remains unclear exactly how that was accomplished.
Although Roberts has argued that the deal will clear antitrust regulators since the companies’ service territories don’t overlap with one another and there are no caps on cable ownership, others are not so sure. Gene Kimmelman of the advocacy group Public Knowledge told the Wall Street Journal that the transaction is “dangerous for broadband competition and would likely inflate consumer prices.” Another activist, Free Press CEO Craig Aaron, warned in a statement: “This deal would be a disaster for consumers and must be stopped.”
It also raises questions about the future of satellite providers such as DirecTV (DTV). Let’s set aside the question about the often-unpredictable world of government regulators and take a closer look at the deal. On paper, combining the two companies is a no-brainer. A combined Comcast/Time Warner Cable deal would be able to fight efforts by content providers to increase retransmission fees far more easily than the likes of DirecTV and Dish Network (DISH).
Combining the two companies also would create a formidable competitor with more than 60 million video and Internet subscribers and about 15 million voice customers. Meanwhile, CMCSA would enjoy the cream of Time Warner Cable’s business is in Los Angeles and New York — two markets that are of keen interest to Comcast’s satellite TV rivals and Verizon’s (VZ) FioS service.
Speaking on CNBC, CBS (CBS) CEO Les Moonves, who won a high-profile fee dispute with Time Warner Cable over the summer, struck a conciliatory tune. He doesn’t foresee any similar problems with Comcast.
“I think Comcast appreciates the value of our content and will pay appropriately” for it, he said, adding that CBS is still “looking at the ramifications” of the transaction.
And even if you brush aside the antitrust concerns, this deal isn’t a slam dunk.
Comcast-Time Warner Cable: A Pimpled Behemoth
Interestingly, there is no break-up fee in this transaction, which is unusual in a deal of this magnitude. Either Comcast is supremely confident or supremely foolish. Moreover, the all-stock transaction values Time Warner Cable at $158.82, a significant premium over its recent price. Of course, TWC stock is up significantly on the news while CMCSA stock is down a few percentage points.