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.
John Eggerton and Mike Reynolds contributed to this report.
