Time Warner Cable (NYSE: TWC)
Markets were down sharply on Tuesday but one bright spot was Time Warner Cable (NYSE: TWC) which surged 7.26% higher to $183.60 after cable giant Charter Communications (NASDAQ: CHTR) announced it would bid for the company along with the smaller privately-held Brighthouse Networks. The deal, if given the green light by the boards of both companies as well as regulators, would create the second largest cable provider in the nation behind Comcast.
The Numbers Behind Time Warner Cable Deal
Charter’s bid for TWC came in at $55.3 billion and values TWC at $195.70 per share. While shares reached a pre-market high of $190.50, still well below the offer price, they pulled back sharply before the open, putting in a bottom mid morning around $177.50 before closing out the day at $183.60. The failure of TWC to touch the offering price could be partly attributed to market weakness, but also to uncertainty about regulatory approval, especially after the pressure Comcast received when it bid for TWC earlier this year which led to it eventually withdrawing. This sentiment was echoed by analyst Craig Moffett who said in a note to clients “one has to be sober about genuine risks that this deal could still be rejected.”
TWC and CHTR Regulatory Hurdles
The hurdle Charter faces is a similar one to Comcast’s: whether or not the deal will, in the view of regulators, be in the American public’s interest. We can all see the risks of allowing a cable behemoth verging on monopoly to form, and while we can be assured regulators will look as closely at this deal as they did Comcast’s, other analyst’s don’t seem as concerned this go around. They cite the overall smaller size of the merged company as compared to the Comcast merger. The deal would give Charter around 18 million internet subscribers compared to Comcast’s current 22 million subscribers. AT&T would come in a not-so-distant third at 16 million subscribers. Furthermore, the new merged company would not offer the same range of products as Comcast, and Analysts feel this should sit better with regulators as it would seem to further allay fears of total market capture.
The Rationale
Of course Charter stands to profit from cost savings through synergies of the merged company, but a more compelling reason for the bid seems to be adding services such as out of home wi-fi and mobile data plans. This is something cable companies are moving toward in earnest as they face ever more competition from on-demand platforms such as Netflix and Hulu, and the only viable approach seems to be through scaling there services among an ever broadening customer base.
