It's Official: Comcast to Merge With Time Warner Cable
Transaction to Create ’World Class Technology and Media Company’
By: Mike Farrell
Multichannel News
Feb 13 2014 - 07:08am
http://www.multichannel.com/cable-operators/its-official-comcast-merge-time-warner-cable/148282
Comcast made it official Thursday morning, announcing that it has agreed
to acquire Time Warner Cable in an all-stock deal with an equity value
of $45.2 billion not including assumed debt, and creating a cable and
technology powerhouse covering almost one-third of television households
in the U.S.
According to the deal, each Time Warner Cable share will be exchanged
for 2.875 shares of Comcast, and TWC shareholders will own about 23% of
the combined company once the deal is closed, which is expected by
year-end. The deal values TWC at about $158.82 per share based on the
last closing price of Comcast shares and is expected to generate about
$1.5 billion in operating efficiencies.
"The combination of Time Warner Cable and Comcast creates an exciting
opportunity for our company, for our customers, and for our
shareholders," Comcast chairman and CEO Brian Roberts sad in a
statement. "In addition to creating a world-class company, this is a
compelling financial and strategic transaction for our shareholders.
Also, it is our intention to expand our buyback program by an additional
$10 billion at the close of the transaction. We believe there are
meaningful operational efficiencies and the adjusted purchase multiple
is approximately 6.7x operating cash Fflow. This transaction will be
accretive and will yield many synergies and benefits in the years ahead.
Rob Marcus and his team have created a pure-play cable company that,
combined with Comcast, has the foundation for future growth. We are
looking forward to working with his team as we bring our companies
together to deliver the most innovative products and services and a
superior customer experience within the highly competitive and dynamic
marketplace in which we operate."
The new cable operations will be headed by current Comcast Cable CEO
Neil Smit. Comcast also has agreed to divest about 3 million TWC
customers as part of the deal, reducing the combined company’s reach to
under 30% of television households in the U.S., about the same share
after its 2002 purchase of AT&T Broadband and its 2006 purchase of
systems from Adelphia Communications.
"This combination creates a company that delivers maximum value for our
shareholders, enormous opportunities for our employees and a superior
experience for our customers,"Time Warner Cable chairman and CEO Rob
Marcus said in a statement. "Comcast and Time Warner Cable have been the
leaders in all of the industry's most important innovations of the last
25 years and this merger will accelerate the pace of that innovation.
Brian Roberts, Neil Smit, Michael Angelakis and the Comcast management
team have built an industry-leading platform and innovative products and
services, and we're excited to be part of delivering all of the
possibilities of cable's superior broadband networks to more American
consumers."
According to Comcast, the deal will facilitate technological innovation,
including an accelerated rollout of its X1 operating system and
cloud-based DVR and its XFinity TV mobile apps. Comcast customers will
also gain access to TWC innovations such as StartOver, which allows
customers to restart a live program in progress to the beginning, and
LookBack, which allows customers to watch programs up to three days
after they air live, all without a DVR. Time Warner Cable also has been
a leader in the deployment of community Wi-Fi, and will combine its more
than 30,000 hotspots, primarily in Los Angeles and New York City, and
its in-home management system, IntelligentHome, with Comcast's offerings.
The deal would effectively quash a months-long quest by Charter
Communications to acquire Time Warner Cable. Stamford, Conn.-based
Charter made its initial overtures to TWC in June through one of its
largest individual shareholders, Liberty Media. Liberty chairman John
Malone has argued that the combined company – which would have about 16
million customers – would operate more efficiently and effectively.
Charter launched a $132.50 per share bid for TWC on Jan. 13 and on
Tuesday put forth a new slate of directors it believed to would be more
friendly to its gambit. Comcast had been rumored to be a part of the
Charter deal, but only to purchase Time Warner Cable systems in New York
City and the Carolinas after a formal deal was reached. Reports surfaced
early yesterday that Comcast was close to an agreement to purchase the
New York City system, but those talks apparently escalated to include
the entire company.
Roberts and Marcus appeared on CNBC this morning, and were engaged in a
conversation led by David Faber, who broke the news last night. Asked if
he bested John Malone in this deal, Roberts replied, “You have to ask
John.” Roberts said he looked at many different iterations of what was
right for Comcast and Time Warner Cable, before constructing this
transaction. Relative to divesting the 3 million subscribers, Roberts
said: "We'd be happy to talk to John [Malone] or anybody else about that
opportunity."
Both executives expressed confidence the deal would pass regulatory
muster. Marcus said there was no break-up fee attached to the
transaction, while Roberts, who noted there isn't any overlap within the
MSOs' respective footprints, said “we have the same closing expectations
as with every other cable transaction.”
Still, the FCC and Justice Department will take a long, hard look at the
deal. That doesn’t mean it is impossible, especially since it could give
the FCC a chance to put conditions, like online access, on TWC and
extend those currently on Comcast per the NBCU deal.
Comcast is also subject to network neutrality conditions as part of the
NBCU deal—the FCC said the condition would stick no matter what the
courts decided. With the D.C. Circuit having thrown out the heart of the
rules. The deal could allow the FCC to put those conditions on TWC, and
extend them on Comcast.
Consolidation critics pushed back hard -- and quickly. Within hours of
the reports on Wednesday night, Free Press CEO Craig Aaron was calling
it a ‘disaster” for consumers.
"In an already uncompetitive market with high prices that keep going up
and up, a merger of the two biggest cable companies should be
unthinkable,” Aaron said. “This deal would be a disaster for consumers
and must be stopped.”
“Unthinkable” was also Public Knowledge senior vice president Harold
Feld’s reaction back in January when asked about the possibility of a
Comcast/TWC combo. "Comcast cannot be allowed to purchase Time Warner
Cable. Antitrust authorities and the FCC must stop it,” said Public
Knowledge senior staff attorney John Bergmeyer at the news that a deal
could be in the offing.
J.P. Morgan, Paul J. Taubman, and Barclays Plc acted as financial
advisors to Comcast and Davis Polk & Wardwell LLP and Willkie Farr &
Gallagher LLP are its legal advisors. Morgan Stanley, Allen & Company,
Citigroup and Centerview Partners are financial advisors to Time Warner
Cable and its Board of Directors, and Paul, Weiss, Rifkind, Wharton &
Garrison LLP and Skadden, Arps, Slate, Meagher & Flom LLP are legal
advisors.
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