Comcast Corp. and Time Warner Cable formally announced Thursday morning that their directors have approved an agreement in which Comcast will acquire 100% of Time Warner Cable for stock worth $45.2 billion.
The deal creates a cable giant with about 33 million subscribers, and has already provoked calls that the government prevent the transaction. Comcast said it is prepared to divest systems serving about 3 million subscribers, which will keep Comcast’s share of U.S. cable subscribers below 30%, a level it said was equivalent to Comcast’s share when it bought AT&T in 2002 and Adelphia in 2006.
Comcast also rescues Time Warner Cable from cable pioneer John Malone and Charter Communications, which had been bidding for the lager cable operators since last year, but had been rebuffed.
“The combination of Time Warner Cable and Comcast creates an exciting opportunity for our company, for our customers, and for our shareholders,” said Brian L. Roberts, chairman and CEO of Comcast. “In addition to creating a world-class company, this is a compelling financial and strategic transaction for our shareholders. Also, it is our intention to expand our buyback program by an additional $10 billion at the close of the transaction.”
Roberts added: “We believe there are meaningful operational efficiencies and the adjusted purchase multiple is approximately 6.7x Operating Cash Flow. This transaction will be accretive and will yield many synergies and benefits in the years ahead. Rob Marcus and his team have created a pure-play cable company that, combined with Comcast, has the foundation for future growth. We are looking forward to working with his team as we bring our companies together to deliver the most innovative products and services and a superior customer experience within the highly competitive and dynamic marketplace in which we operate.”
In addition to owning the biggest cable operator in the U.S., Comcast owns NBCUniversal, a major broadcast and cable programmer.
Time Warner Cable CEO Rob Marcus said: “This combination creates a company that delivers maximum value for our shareholders, enormous opportunities for our employees and a superior experience for our customers.”
Marcus added that: “Comcast and Time Warner Cable have been the leaders in all of the industry’s most important innovations of the last 25 years and this merger will accelerate the pace of that innovation. Brian Roberts, Neil Smit, Michael Angelakis and the Comcast management team have built an industry-leading platform and innovative products and services, and we’re excited to be part of delivering all of the possibilities of cable’s superior broadband networks to more American consumers.”
The new cable company will be led by Comcast Cable president and CEO Neil Smit. The companies said the combination will generate multiple consumer benefits, including an accelerated deployment of existing and new innovative products and services for millions of customers. Comcast’s subscribers today have access to the most comprehensive video experience, including the cloud-based X1 Entertainment Operating System, plus 50,000 video on demand choices on television, 300,000 plus streaming choices on XfinityTV.com, Xfinity TV mobile apps that offer 35 live streaming channels plus the ability to download to watch offline later, and the newly launched X1 cloud DVR. Comcast is also a technology leader in broadband and has increased Internet speeds 12 times in the past 12 years across its entire footprint.
“Through this merger, more American consumers will benefit from technological innovations, including a superior video experience, higher broadband speeds, and the fastest in-home Wi-Fi,” the companies said in their statement. “The transaction also will generate significant cost savings and other efficiencies. American businesses will benefit from a broader platform, and the Company will be better able to offer advanced services like high-performance point-to-point and multi-point Ethernet services and cloud-based managed services to enterprises. Additionally, the transaction will combine complementary advertising platforms and channels and allow Comcast to offer broader and more valuable packages to national advertisers.”
The financial terms of the transaction call for each Time Warner Cable share to be exchanged for 2.875 shares of Comcast, equal to Time Warner Cable shareholders owning approximately 23% of Comcast’s common stock, with a value to Time Warner Cable shareholders of approximately $158.82 per share based on the last closing price of Comcast shares, the companies said. The transaction will generate approximately $1.5 billion in operating efficiencies and will be accretive to Comcast’s free cash flow per share while preserving balance sheet strength. The merger will also be tax free to Time Warner Cable shareholders.
Both the FCC and Justice Department will take a long, hard look at any proposed Comcast/TWC deal. That doesn’t mean it is impossible, especially since it would give the FCC a chance to put conditions, like online access, on TWC and extend those currently on Comcast per the NBCU deal.
Comcast is also subject to network neutrality conditions as part of the NBCU deal—the FCC said the condition would stick no matter what the courts decided. With the D.C. Circuit having thrown out the heart of the rules. The deal could allow the FCC to put those conditions on TWC , and extend them on Comcast.
But consolidation critics will push back hard. Within hours of the reports, Free Press CEO Craig Aaron was calling it a ‘disaster” for consumers.
"In an already uncompetitive market with high prices that keep going up and up, a merger of the two biggest cable companies should be unthinkable,” he said. “This deal would be a disaster for consumers and must be stopped.”
“Unthinkable” was also Public Knowledge senior VP Harold Feld’s reaction back in January when asked about the possibility of a Comcast/TWC combo. "Comcast cannot be allowed to purchase Time Warner Cable. Antitrust authorities and the FCC must stop it,” said Public Knowledge senior staff attorney John Bergmeyer at the news that a deal was in the offing. --John Eggerton contributed to this story.
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Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.