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After the markets closed in the US yesterday word began to spread that giant cable company Comcast Corporation, which is led by the son of its founder, Brian Roberts, is indeed going to merge with its cable competitor Time Warner Cable in an all transaction which is expected to be announced on Thursday morning
Terms of the deal apparently call for an all share transaction, and one which values TWC at somewhere close to the US$160 per share that the TWC board has been demanding of the current competitive bidder Charter Communications. Charter’s own bid for TWC has been so far stalled at US$132.50 per share, in cash and stock.
The number of sources apparently hinting at the story to the financial press yesterday means this merger is indeed likely now to be announced, though only when we see the formal details and confirmation from the two companies can we say for certain later today.
The implication of an all share offer is significant for the ongoing financial stability of the two merged entities, whereas a successful Charter bid would entail large amounts of ensuing financial leverage.
Yesterday TWC shares closed largely unchanged at around US$135 per share, valuing the company at $37.5 billion. The gap to the price the TWC Board would like to achieve is 18%, so if they come close with the final announced price they will have done well for their shareholders. At US$160 per share, for example the bid would be worth over US$44 billion. Such a price will be about 8.5 x EBITDA.
A merged Comcast, the nation’s largest cable provider with 22 million subscribers, and TWC, the second largest with 11 million would have profound implications for what has been a rapidly consolidating industry. It was just in 2011 that Comcast also bought up NBC Universal, also a rival cable provider and content creator. Considered a doubtful deal for Comcast at the time, NBC did so well at the London Olympics in 2012, for which it had paid massively for the rights, that it was afterwards considered a highly regarded deal.
While the cable markets of Comcast and TWC do not seriously overlap, nevertheless the deal is likely to invite some serious antitrust scrutiny and, at the very least, divestment of a number of assets in certain markets.
Charter commenced its pursuit of TWC last year, which is led by Robert Marcus, after the former cable king John Malone, who controls Liberty Media, had bought a 27% position in Charter to use as a springboard for his return to the cable industry.
Since then TWC has seemingly made its preference for a tie up of some kind with Comcast rather than Charter well known to all. In addition TWC’s aversion to the CEO of Charter Thomas Rutledge, who was until quite recently a top executive at TWC himself, has been apparent. Sometimes in business things can indeed get a little personal.
Jewish Business News will provide an update once the appropriate confirming announcements are made later today.
