Comcast Corp. Chief Executive Officer Brian Roberts isn’t a part of Charter Communications Inc. (CHTR:US)’s offer for Time Warner Cable. He may still get to decide the outcome.
Comcast, the largest U.S. cable operator, is weighing its options to play a role after Charter this week offered to acquire Time Warner Cable for $37.4 billion. These include bidding for all or parts of Time Warner Cable -- alone or in partnership with Cox Communications Inc. -- joining Charter’s bid or buying assets from Charter after a deal, said people with knowledge of the company’s thinking, who asked not to be named discussing confidential matters.
Roberts’s decision could be pivotal in the contest for Time Warner Cable’s 15 million customers, given Comcast’s $5.7 billion (CMCSA:US) in cash, its relatively low debt levels and its superior technology. The company is also favored by Time Warner Cable CEO Rob Marcus, three people said. He would prefer a friendly deal with Comcast because the Philadelphia based-company can offer more cash to shareholders than Charter, saddling the new company with less debt, they said.
“Brian Roberts is very much a kingmaker here,” Todd Mitchell, an analyst at Brean Capital LLC in New York, said in an interview. “Not only can Comcast offer more cash and give the resulting entity less leverage, it has a proven track record as an operator. Comcast could be a better steward for Time Warner Cable’s assets going forward.”
Charter, which is backed by billionaire John Malone’s Liberty Media Corp. (LMCA:US), said this week it would have to borrow $20.5 billion if it combined with Time Warner Cable. Charter offered a cash and stock deal valued at $132.50 per share to Time Warner Cable’s management, which was rejected. Time Warner Cable shareholders would own 45 percent of the new company under the terms of the proposal.
Time Warner Cable rose slightly to $135.52 (TWC:US) as of 9:49 a.m. in New York today, giving the company a market value of about $38 billion. Charter also rose to $135.50, while Comcast fell to $53.14.
Comcast ended the third quarter with $5.7 billion in cash and net debt equal to 1.9 times earnings before interest, taxes, depreciation, and amortization, according to data compiled by Bloomberg. That compares with Charter’s debt-to-Ebitda ratio of 5.3, the data show.
Comcast said earlier this month it added video subscribers (CMCSA:US) in the fourth quarter, the first time any of the four-largest public U.S. cable companies gained customers since 2012. Time Warner Cable said it lost 215,000 TV subscribers in the quarter. Charter hasn’t released its fourth-quarter numbers yet.
Comcast isn’t in a rush to act and will probably allow Charter to raise its bid before making a counterproposal, if it doesn’t partner with Charter, two of the people said. Comcast, which would have preferred to acquire Time Warner Cable two years from now, as it views President Barack Obama’s administration as a tough regulator, may act sooner if Time Warner Cable will otherwise be acquired, the people said.
“If Comcast acquires cable assets, we believe it has the operational track record to drive healthy cost and potentially revenue synergies,” Morgan Stanley analyst Benjamin Swinburne wrote this week in a note to clients.
Charter spoke with Comcast as recently as this week about selling Comcast some assets if Charter’s Time Warner Cable bid is accepted, two people said. If a deal between Charter and Time Warner Cable gets done, Comcast may acquire divested assets after the initial takeover is completed to avoid increased regulatory delays, the people said.
There are no formal restrictions preventing Comcast or Charter from acquiring Time Warner Cable. A U.S. court vacated a regulatory cap on the size of cable companies in 2009, and antitrust laws may have limited relevance because cable providers typically don’t compete for the same customers.
That makes cable different than the wireless industry, where AT&T Inc.’s attempt to acquire Deutsche Telekom AG’s T-Mobile US Inc. failed in 2011 after the Justice Department sued to block it. Still, regulators may want to limit Comcast’s size because of its ownership of NBC Universal’s broadcast and cable networks.
Another option is that Comcast could help Charter increase the cash component in a joint bid, one of the people said. Time Warner Cable asked Charter for $100 in cash per share, along with $60 in Charter stock, in a counterproposal to Charter’s offer of about $83 in cash and about $49.50 in stock.
Spokesmen for Charter, Comcast and Time Warner Cable declined to comment.
Time Warner Cable, the second-largest U.S. cable operator, had discussions with Comcast last year to gauge the company’s interest in an acquisition, two of the people said. Those discussions are no longer active, the people said.
Comcast, which is being advised by JPMorgan Chase & Co., has also discussed a joint bid for Time Warner Cable with Cox, the third-largest U.S. cable company, two people said. Those talks also aren’t active, and Cox’s interest has diminished, one of the people said. Cox spokesman Todd Smith declined to comment.
Malone, whose Liberty Media is Charter’s largest shareholder, is intrigued by Comcast’s technology and Xfinity TV guide interface. A deal with Comcast may pave the way toward Charter using Xfinity for its customer base, two of the people said. Comcast is considering the opportunity to license its X1 product, which is Internet Protocol-connected, Neil Smit, Comcast’s executive vice president, said in October.
“I see no reason why a vehicle, whether it’s Xfinity or the equivalent, can’t be syndicated,” Malone said in October.
Comcast is interested in acquiring Time Warner Cable’s Los Angeles, New York City and Charlotte, North Carolina cable assets, two people said. The largest U.S. pay-TV provider wants the cities because they abut current Comcast territories, making it easier for Comcast to cut costs, service customers, sell advertising and roll out new technology, they said. The cities also are home to major sports teams, which are valuable cable assets as customers are less likely to cut pay-TV service, one of the people said.
The opportunity to connect medium-sized and large businesses with video, Internet and voice is the next major growth opportunity in cable, Craig Moffett, an analyst with MoffettNathanson LLC said. That, too, may entice Comcast to join Charter in its pursuit of acquiring Time Warner Cable, he said.
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