Also, TWC’s “jewels” are expensive markets to serve given their population densities, and in the case of L.A., large geographical areas. Time Warner Cable, like Comcast, also has invested heavily in sports programming. It recently signed an $8.5 billion for the rights to the Los Angeles Dodgers and another $5 billion or so for the Los Angeles Lakers.
Comcast might also have to keep a lid on rates to appease the concerns of antitrust regulators.
One of Comcast’s biggest weaknesses is customer service — another facet of business that must be improved if the Time Warner Cable deal is to succeed. CMCSA has outsourced that key business function to the Philippines, and Twitter and Facebook are full of personal anecdotes about how awful their dealings have been. My own personal experiences parallel those.
Investors also can’t forget about John Malone, who plays the role of wild card in this situation. Although it’s unlikely that he will counter-offer for Time Warner Cable, the cable tycoon could pressure regulators to scuttle Comcast’s deal. Or Charter could buy the systems that Comcast would divest as part of the conditions for antitrust review. It’s hard to tell. But Charter shareholders aren’t taking the move lightly; CHTR stock is getting pounded in Thursday trading.
Buying a stock based on potential M&A is foolish, because not only do deals sometimes fall through, but many times, deals don’t live up to their inflated expectations of the companies involved and the Wall Street analysts who follow them.
Comcast at least continues to confound the naysayers, including me. While analysts still see more upside ahead, however, I wouldn’t pull the trigger — CMCSA has too many unknowns (such as the Olympics, which is a nominally profitable business at best) and the Time Warner Cable deal. TWC itself is far less attractive than Comcast on its own.
And Charter? CHTR seems too risky as well because absent the Time Warner Cable deal, its only path to growth would seem to be an acquisition of Cablevision (CVC) … but that company is losing customers to FioS, among others, and has almost $10 billion in debt at the end of the last quarter. Plus, it remains to be seen whether the Dolans, who control Cablevision, would be interested in selling.
Now that Comcast’s Roberts has placed all of his chips in on Time Warner Cable, Wall Street will want to see payoffs sooner rather than later. They don’t take kindly to bluffing.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.