While cable stocks surge in the wake of reports that Charter Communications is lining up bankers for a Time Warner Cable bid, Comcast is reportedly seeking advice concerning the possibility of launching its own offer for the nation’s second largest cable operator.
According to CNBC, Comcast officials have been inquiring about possible regulatory and anti-trust hurdles to a TWC bid. CNBC, which is owned by Comcast’s NBC Universal unit, stressed that the MSO is not in active discussions with TWC on a deal and is only seeking guidance on anti-trust and telecom issues.
Sources in the cable financial community said that TWC has reached out to Comcast in recent weeks, stressing that no deal is imminent.
Comcast declined comment.
Comcast is the largest MSO in the country with 22 million customers. A combination with TWC would create a 33 million subscriber behemoth with operations in most of the major cities in the U.S., including New York, Los Angeles, San Francisco and Chicago.
In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote a combined Comcast/TWC would control 60% of the cable homes in the country, 33% of all pay television households and 36% of all broadband connections in the U.S., which could pose a very high regulatory hurdle.
“A company of that size would arguably have de facto control of what content could and couldn’t exist in the U.S. (a programmer that failed to get a distribution deal with Comcast arguably wouldn’t be economically viable),” Moffett wrote.
A spokesperson for media consolidation critic Free Press said that group would fight any merger between the two. "We would oppose any deal that would put so much control in the hands of the biggest cable and internet providers," the spokesperson said.
The group also suggested there would be a high hurdle at Justice and the FCC, which would both vet the deal, the former for antitrust issues and the latter additional public interest considerations.
Moffett also shed some additional light on the viability of a Charter bid, adding that at a price of between $130 and $150 per share for TWC, the Connecticut MSO would have to squeeze an additional $800 million to $1.6 billion in cash flow out of the combined entity, above and beyond any cost synergies associated with the merger.
While Charter CEO Tom Rutledge has said that any acquisition would be centered on Charter’s ability to run the business better, Moffett wrote that improving TWC‘s operations could require increasing the second largest MSO’s cash flow between 9% and 19%.
“Rutledge is the best operating executive in the cable industry,” Moffett wrote. “But achieving such benefits may prove challenging even for someone with his level of talent.”
John Eggerton contributed to this report