Comcast Corp. (CMCSA:US) is planning to increase its share buyback program by more than 80 percent if investors approve its $45 billion acquisition of Time Warner Cable Inc., boosting shareholder returns.
Comcast will add $2.5 billion to the current plan for $3 billion in 2014 buybacks if shareholders vote for the deal, Chief Financial Officer Michael Angelakis said in an interview. A planned sale of assets to complete the deal may produce cash for even more repurchases, he said.
Time Warner Cable suspended its own repurchase program of about $2.5 billion after agreeing to Comcast’s buyout proposal in February. Comcast could increase its repurchases by that same amount if Time Warner Cable shareholders vote to approve the merger, Angelakis said.
“We had a commitment to purchase $3 billion shares of our stock,” Angelakis said. “We’d evaluate whether we’d want to accelerate that plan and increase it above $3 billion, based on the fact that Time Warner Cable had terminated their buyback plan.” That means Comcast’s share repurchases this year could total $5.5 billion.
Comcast’s shares rose as much as 2.1 percent to $50.39 after Bloomberg News reported the buyback proposal. The shares gained 1.4 percent to $50.04 at the close in New York.
Time Warner Cable hasn’t yet set a date for a shareholder vote on the deal, which is also awaiting regulatory approval. Charter (CHTR:US) Communications Inc., which was outbid by Comcast, has asked Time Warner Cable shareholders to vote against the merger.
Comcast shares had fallen 10 percent since the acquisition was announced last month, reducing the value of the company’s all-stock offer. The proposal of 2.875 in Comcast stock for each Time Warner Cable share was worth $143.87 a share at today’s close, down from $158.82 the day the transaction was made public.
The company has $5.3 billion (CMCSA:US) in cash and equivalents. It has spent between $2 billion and $3 billion purchasing (CMCSA:US) its own stock in each of the past three years, according to its annual regulatory filing.
Comcast may boost its buybacks even further after the merger by using the proceeds of the planned sale of cable systems serving 3 million subscribers, Angelakis said.
The 3 million subscribers would be worth “at least” the $17.6 billion estimated last month by Bloomberg Industries, Angelakis said. He declined to say how much more. Philadelphia-based Comcast is looking to use the “vast majority” of the proceeds from that sale to add to the share buyback plan, he said.
The company is evaluating a number of options for the 3 million subscribers, the CFO said. Time Warner Cable had 11.4 million video customers at the end of 2013, compared with about 21.7 million at Comcast, data compiled by Bloomberg show.
Comcast Chief Executive Officer Brian Roberts said last month that he was prepared to divest subscribers as part of the takeover to keep the merged company’s customers below 30 percent of the total U.S. pay-TV market, even though there’s no regulatory cap on how large a video provider can grow.
In evaluating its options, Comcast has said it could sell all 3 million subscribers at once or sell them in pieces to different cable operators. It also could spin off those subscribers into a new company, Angelakis said.
“It’s a complex process, and we’re trying to figure out the most appropriate ways to do this,” he said.
Comcast has only begun its analysis of which markets totaling 3 million subscribers will be sold. The company is considering whether to choose them based on their geographic location or their infrastructure needs, such as whether they have been upgraded to digital service or still rely on older analog signals, Angelakis said.
Regulators may push for the spinoff option because it would create a new competitor, one of the people said at the time. A new company formed in such a way would be the fourth-largest U.S. cable operator by subscribers, trailing the merged Comcast-Time Warner Cable, Cox Communications Inc. and Charter.
A spinoff would probably be the most tax-efficient way for Comcast shareholders to profit from a divestiture, Paul Sweeney, an analyst for Bloomberg Industries, said last month.
Last week, Charter urged Time Warner Cable investors not to endorse Comcast’s takeover, signaling it’s not backing down in its pursuit of Time Warner Cable. Charter, backed by billionaire investor John Malone, failed in its bid buy Time Warner Cable when it offered $132.50 per share in January.
Angelakis declined to comment on Charter’s statement.
Charter is interested in Comcast’s 3 million subscribers, Liberty Media Chief Executive Officer Greg Maffei said last month on a conference call, and Bright House Networks LLC and Suddenlink Communications, the sixth- and seventh-largest U.S. cable companies, may seek to buy a portion, one person said.
Comcast has received a flood of interest in the subscribers, Angelakis said.
“It’s pretty clear there’s a robust market for cable investors right now,” he said.
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