Bloomberg reported Friday that Department of Justice (DOJ) staff attorneys were leaning toward recommending the Comcast/Time Warner Cable deal should not be approved and were close to making that recommendation.
That would still be only a recommendation — Federal Trade Commission staffers also reportedly advised the FTC that Google had violated antitrust rules in its search business, but the FTC concluded otherwise.
But the report adds to growing uncertainty about the deal, where Wall Street handicappers have been reducing their odds on approval, particularly given the combined company's combined broadband subs. Comcast points out that the deal would not lessen competition for broadband access since it does not compete with Time Warner Cable now for those subs, but it is the combined sub count under one company that critics point to.
Bloomberg also reported that DOJ staffers were not working with Comcast to resolve DOJ issues.
Speaking on background, a source familiar with Comcast's meetings with regulators said the company continued to have what they characterized as productive discussions with the DOJ and the FCC, as it has throughout this process. For its part, the FCC is still in the information-collection process on the deal.
Comcast announced its plan to acquire TWC in February 2014, after the months-long pursuit of the second largest cable operator in the country by Charter Communications fell apart. Comcast said when announcing the deal that the merger would create a cable and Internet powerhouse that would offer consumers faster speeds and more choice.
While the deal was first expected to sail through the approval process – Comcast noted that there was no overlap in the operating territories of each company – that climate has turned chilly in the past several months.
Several analysts have said that the odds of the deal passing regulatory scrutiny have shrunk to as low as 50-50 as critics have pointed to the sheer dominance of the broadband market the combined company would have. In a recent blog posting, BTIG Research media analyst Rich Greenfield said he doubted that the deal would get approved.
“With the overlay of the populist uprising driving government policy, it is hard to imagine how regulators could approve the Comcast Time Warner Cable transaction at this point,” Greenfield said in the blog post. “Comcast continues to try to get the government to look to the past to get its deal approved. But the framework is about not only what is current, but what the future will look like – especially in a rapidly changing broadband world.”
The latest uncertainty around the deal forced Time Warner cable shares down more than 5% ($8.19 each) in afternoon trading to $150.01 per share. Comcast shares fell 2.3% ($1.38 each) to $58.29 per share.
While investors remained skittish, Time Warner Cable executives had some doubts about the reports.
“We’ve had no indication from the DoJ that this is true,” TWC executive vice president and chief communications officer Ellen East said in an e-mail message concerning the Bloomberg article. “We've been working productively with both the DoJ and the FCC and believe there is no basis for DoJ to block the deal.”
If the Comcast-TWC merger didn’t go through, it would set into motion a veritable feeding frenzy for Time Warner Cable. Charter Communications, whose 2013 pursuit of Time Warner Cable was thwarted by Comcast, has said it would be interested in acquiring TWC in the event it becomes available. Others are likely to be of the same mind.
Comcast has said repeatedly that it believes the merger will benefit the public, offering greater access to broadband and better choice.
"The Comcast/Time Warner Cable transaction will result in significant consumer benefits — faster broadband speeds, access to a superior video experience, and more competition in business services resulting in billions of dollars of cost savings,” Comcast said in a statement. “These benefits have been essentially unchallenged in the record - and all can be achieved without any reduction of competition. As a result, there is no basis for a lawsuit to block the transaction.”
The Stop Mega Comcast Coalition certainly wasn't ready to declare victory.
"Today’s Bloomberg report that the DOJ is preparing to file suit to block the Mega Comcast merger is encouraging," the group said. "But, we also recognize that the DOJ and FCC review is ongoing, so we intend to continue to vigorously advocate for the formal rejection of this merger, amplifying the voices of businesses, consumer organizations and more than 700,000 citizens who have spoken out against this bad deal.”