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If TWC Deal Gets Done, What Might Comcast Sell?

Comcast’s pending $69 billion merger with Time Warner Cable is expected to help goose what is hoped to be a resurgent deal market.

The cable giant — created when Comcast announced plans last month to buy Time Warner Cable in an all-stock deal worth $160 per share — has many in cable wondering which markets will be included in the possible 3 million subscribers the new cable behemoth could divest.

Comcast said it would sell off 3 million subscribers — keeping the combined entity at about 30 million customers, or about 30% of U.S. television homes — if needed.

The cable deal market had been gaining steam in the months leading up to Liberty Media’s $2.6 billion investment in Charter Communications, which started the latest round of consolidation talk. Now, with Comcast’s agreement to acquire Time Warner Cable and its pledge to divest as many as 3 million subscribers if needed to appease regulators, operators are on the hunt again.

But Comcast hasn’t yet revealed where it will be divesting subscribers, prompting a bit of a guessing game in the cable financial community. While no specific markets have been revealed, some MSOs and members of the financial community have put in their candidates for possible divestiture.

One option Comcast is considering, according to sources familiar with the matter, is spinning off the 3 million subscribers in a separate entity headed by Time Warner Cable management. A spin could be more tax-efficient — Comcast has said publicly that tax issues would be one of the considerations in determining which assets it would divest — and it could further appease regulators by creating another independent cable company.

According to some people in the cable financial community, systems in Georgia, Arizona and Texas could be included in the mix, but that is subject to change. Comcast has systems in Atlanta and other smaller parts of Georgia, as well as in Houston, Texas and parts of Arizona and New Mexico. Time Warner Cable has systems in Dallas and other parts of Texas and Kentucky.

“When you have 33 million subscribers, there is always a bottom 10% club,” said one investment banker who asked not to be named. “The question is, who is in that bottom 10%?”

Were all the properties to be sold at once, the price tag would be between $10 billion and $15 billion. That’s out of the league of most small operators, but well within the wheelhouse of cable companies like Charter Communications — which lost out in the TWC bidding and has expressed a willingness to gain scale through acquisition — and Cox Communications.

TAKEAWAY

Cable’s financial community is speculating on where Comcast might sell systems with as many as 3 million subscribers once it closes its Time Warner Cable acquisition.