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Comcast Walks Away From TWC

Terminates $67B Merger After 14 months 4/24/2015 8:45 AM Eastern

About 14 months ago, in announcing his plan to merge his cable company with Time Warner Cable, Comcast chairman and CEO Brian Roberts said in the event the process became too onerous, or the deal looked less attractive, he could always walk away. On Friday, he did just that.

 

“Today, we move on,” Roberts said in a statement. “Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away. Comcast NBCUniversal is a unique company with strong momentum.  Throughout this entire process, our employees have kept their eye on the ball and we have had fantastic operating results.  I want to thank them and the employees of Time Warner Cable for their tireless efforts. I couldn’t be more proud of this company and I am truly excited for what’s next.”

 

Just what that will be is anyone’s guess. In a statement, Time Warner Cable chairman and CEO Rob Marcus also expressed hope for the future.

 

“We have always believed that Time Warner Cable is a one-of-a-kind asset,” Marcus said in a statement.  “We are strong and getting stronger. Throughout this process, we’ve been laser focused on executing our operating plan and investing in our plant, products and people to deliver great experiences to our customers. Through our strong operational execution and smart capital allocation, we are confident we will continue to create significant value for shareholders... I’m extremely proud of the professionalism, dedication and resiliency our 55,000 employees have shown over the past year and thank them for their continued commitment to Time Warner Cable.”

 

The decision to abandon the $67 billion merger ends weeks of speculation and cheered opponents of the deal who had complained that the union would create a company with unprecedented power and influence over the nation’s broadband infrastructure. Depending on how you define broadband – and the Federal Communications Commission has changed that definition several times over the years – a combined Comcast and Time Warner Cable would control about 60% of the high-speed data connections over 25 Megabits per second in the country. In the end, that level of dominance was too much for the FCC to overlook.

 

The Department of Justice was taking credit for putting the kibosh on the Comcast deal, announcing Friday that Comcast had dropped its Time Warner Cable bid "after the Department of Justice informed the companies that it had significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers."

 

“The companies' decision to abandon this deal is the best outcome for American consumers,” said Attorney General Eric Holder in a statement. “The Antitrust Division of the United States Department of Justice has demonstrated, time and again, that it can and will defend the interests of the American consumer no matter the complexity of the issue or the size of the opponent.  This is a victory not only for the Department of Justice, but also for providers of content and streaming services who work to bring innovative products to consumers across America and around the world.  I commend the Antitrust attorneys and investigators whose outstanding work led to this outcome, and I know that the Department of Justice will continue to fight for fair access and free competition in every industry and every market.”

 

Holder did give the FCC some credit for their "close and productive cooperation throughout this investigation."

 

For his part, FCC chairman Tom Wheeler suggested that the country was better off with Comcast and Time Warner Cable not together.

 

"Comcast and Time Warner Cable’s decision to end Comcast’s proposed acquisition of Time Warner Cable is in the best interests of consumers," he said. "The proposed transaction would have created a company with the most broadband and the video subscribers (SIC) in the nation alongside the ownership of significant programming interests."

 

"Today, an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation, including to the ability of online video providers to reach and serve consumers."

 

Speculation that the deal was in grave danger heated up on April 17 after reports that the Department of Justice was leaning toward not approving the transaction, That speculation reached a fever pitch on Wednesday night, when reports surfaced that the FCC, after meetings with Comcast earlier that day, would recommend that the matter be heard by an administrative law judge. That would have meant a massive delay in the process and is typically a clear signal that the FCC did not believe the merger was in the public interest. Within hours, Comcast had decided that pursuing the merger would be fruitless.

 

With the merger on the outs, the next question is what is in store for Time Warner Cable. Although the company has been working toward a merger for more than a year, it has hardly been sitting on its heels. The company began implementing its five-year business plan well before it agreed to the Comcast deal, and it has been paying off. TWC had its best fourth quarter in seven years in 2014 and the company no longer is the stumbling giant it was when Charter Communications made its first overtures to the company in 2013.

 

Charter is still expected to make a run for TWC, but it may be more costly — some analysts estimate it would have to pay at least $164 per share a 10% premium to TWC’s April 23 closing price. And with a few strong quarters under its belt, Time Warner Cable could make a case for going it alone — similar to the stance its former parent Time Warner Inc. made last year when it rejected an $80 billion unsolicited takeover bid from 21st Century Fox.

 

Also in flux is what will happen to the expected consolidation wave in the industry if Charter does decide to make another run at Time Warner Cable. Most industry analysts expected Charter to lead the way in consolidating the rest of the cable business, but that may be on hold if Charter’s attentions are focused on TWC.

 

Bernstein analyst Paul de Sa pointed out that, with the deal withdrawn, other players won't have a chance to see exactly how the FCC was approaching the mergr, and by extension would approach others in the space, though clearly broadband sub counts was a big issue.

 

"The framework against which future cable/cable and broadband/payTV deals will be assessed has not been made public," he said in a note to investors. "As such, it is unclear how other combinations/market swaps among Comcast, TWC, Charter, Brighthouse, Cablevision, etc. that may be proposed in the wake of the current deal might be regarded by regulators (e.g., how many broadband subscribers is "too many" with respect to the power to impede over-the-top (OTT) video competition?). Further, conditions on AT&T/DIRECTV, which increases AT&T's incentive and ability to harm fixed and mobile OTT players and also reduces payTV competition in many markets, may be more stringent than consensus expectations."

 

 

 

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