Comcast stock has been down about 7.5% since it announced its $69 billion merger agreement with Time Warner Cable on Feb. 13. That’s understandable in large acquisitions, but it could, in the extreme, become of increasing concern as the deal edges closer to completion.
It is a common tenet of business investing that in any large acquisition, smart investors sell the buyer and buy the seller, which appears to be happening.
Comcast stock has dipped from $55.24 on Feb. 12, the day before it announced the TWC deal, to $51.08 on Feb. 27. Time Warner Cable shares are up by 2.4% in the same time frame. Again, that’s typical in large deals.
Liberty Media CEO Greg Maffei brought up the Comcast decline in an earnings call last week discussing fourth-quarter results. Liberty owns a 27% interest in Charter Communications, whose $132.50 per-share offer for TWC was trumped by Comcast.
Maffei said he was unsure whether the Comcast/TWC merger would pass regulatory muster. He said it would depend on what conditions are heaped on the union by the government. But he managed to throw in a slight dig at the deal, noting that it doesn’t include the stock price collar that TWC was so insistent upon in the Charter bid.
“There are a couple of prices paid,” Maffei said of the deal. “There is the nominal $158.80-something that was agreed upon and there is the price now being offered without the so-desired cap or collar on Comcast stock. I noticed that price has declined somewhat from the indicated initial price. We’ll see what actually gets paid.”
Later, asked if Charter would consider making another offer for TWC, possibly in the $140 pershare range, if Comcast stock continues to weaken, Maffei said all options would be considered.
“We will watch with interest how that proceeds,” Maffei said. “We’re not going to take any option off the table about what Liberty thinks is in the best interest of their shareholders. I suspect Charter management will do the same thing.”
Nobody really believes that the stock will fall enough to prompt another Charter offer, and Charter has given no indication it would restart its takeover efforts.
So just how much would Comcast stock have to fall for the deal to be troublesome for Comcast shareholders?
A quick analysis seems to show it would have to be an extremely dramatic drop.
TWC shareholders stand to end up with 23% of the combined company after the deal closes. To raise that stake to 35%, Comcast stock would have to fall 43%, to $31.76 per share.
For TWC shareholders to end up with more than half of the combined entity, Comcast shares would have to plummet 71%, to $15.88 per share. It should be noted that Comcast hasn’t traded that low in about four years.
