Comcast just gave merger junkies plenty to watch on cable.
The biggest U.S. operator has agreed to buy rival Time Warner Cable for $45 billion in stock, interrupting a hostile takeover attempt by smaller Charter Communications. The target got the price it wanted, but not the terms. Regulatory risks are high. And all eyes will still be on the crafty John C. Malone.
The maneuvering by Charter’s boss, Tom Rutledge, appeared to have relegated Comcast, which is still busy integrating NBC Universal, to a minor role of assisting with the smaller operator’s unsolicited bid for Time Warner Cable. Instead, Comcast’s chief executive, Brian Roberts, has outflanked his would-be partners.
Mr. Roberts is offering Comcast stock worth $159 a share, just $1 shy of what Time Warner Cable’s boss, Rob Marcus, demanded from Charter, which has so far only sweetened its bid to $132.50. Mr. Marcus also wanted Charter to pay at least 60 percent of the purchase price in cash and put in place collars to protect Time Warner Cable shareholders. He is getting neither from Comcast.
Some aspects of the deal may help support Comcast shares. Putting the two companies together is expected to yield $1.5 billion of cost savings. Taxed and capitalized, those would be worth about $10 billion. That more than covers the 18 percent premium to Time Warner Cable’s most recent closing price - although it has been propped up by anticipation of a deal with Charter. Comcast also may offer another sop in the form of a $10 billion stock buyback.
The merger math could help distract investors from regulatory concerns raised by combining the country’s top two cable operators. Comcast is proposing to sell 3 million of Time Warner Cable’s 11 million pay-TV subscribers to keep its market share below a rule-of-thumb ceiling of 30 percent. That’s the same threshold it reached after previous deals in 2002 and 2006.
Trust busters, however, are tougher these days, as AT&T found out in 2011 when the Department of Justice blocked its attempted takeover of T-Mobile USA.
There is also no guarantee that Mr. Rutledge and Mr. Malone, whose Liberty Media owns 27 percent of Charter, are finished either. Mr. Rutledge is taking aim at a former employer that passed him over as C.E.O. and may not be satisfied with the subscribers Comcast plans to offload. Malone is a notorious tactician, who in the last couple years has gone headlong back into the cable industry he helped pioneer. Stay tuned.
Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
