On April 24, it was reported that the representatives of Charter Communications Inc. (CHTR, Financial), the fourth-largest cable operator in the United States, have approached Time Warner Cable (TWC, Financial), the second-largest cable company, to discuss a potential merger that will be very significant in the U.S. cable TV and Internet-based services market. This event took place right after the failed bid of $45 billion by market leader Comcast Corp. (CMCSA, Financial) for Time Warner due to concerns of unfair advantage raised by U.S. regulators. It is further said that Charter started preparing for financing the potential deal even before Comcast dropped its bid.
The deal makers
Charter Communications offers cable television, high-speed Internet and telephone services to more than 5.9 million customers in 29 states while the cable telecommunications company Time Warner Cable Enterprises Inc. operates in 29 states and has 31 operating divisions. On Friday, Charter shares rose by 2.17% to $185.75 while share of Time Warner Cable were up by 4.37% at $155.26 in after-hours trading. Charter Communications Inc. had initially bid for Time Warner Cable last year but lost to the more lucrative offer made by the powerful Comcast Corp. Liberty Media Corp, the controlling shareholder of Charter, had however indicated continuing interest.
Comcast Corporation, the international mass media company, is the largest broadcasting and cable company in the world by revenue with U.S. residential and commercial customers in 40 states. The all-stock $45 billion offer was lucratively bid at $159 per Time Warner Cable share at the time of the offer last year and would stand at $172 per share at Comcast's current share price. Unfortunately, the deal broke down under the vigilant scrutiny of U.S. regulators and concerns of monopolistic control over "what Americans do online and watch on TV."
Comcast had resisted valiantly against the allegations of calling the Time Warner Cable deal as anti-competitive with two companies having no real geographic overlap and even proposed divestment of some assets to address regulatory concerns. The justification of consistent and faster video service to more Americans failed and Comcast had to withdraw the offer.
After this setback, Chief Executive Brian Roberts for Comcast said in an official statement, "Today, we move on" while according to the U.S. Attorney General Eric Holder, “the companies' decision to abandon the deal was the best outcome for American consumers.”
The breakdown of the deal exposed the regulatory risk on merger activities in the highly competitive U.S. satellite TV and Web-based services industry and also gave an opportunity for fresh bidding, which Charter is reportedly acting upon.
The upcoming deal
Needham analysts predict that Charter will offer for TWC in the next three months a bid anticipated to be much lower than the market’s expectations. After suffering an immediate rejection last year to the initial bid of $132.50 per share at $37.3 billion for Time Warner Cable Inc., Charter Communications Inc. is reportedly considering a low bid in $140s.
In an interesting twist, Comcast is still in the foray with persisting interest in Time Warner’s cable operations in New York City and parts of New England. If Charter, can execute a successful acquisition, then it is said that Comcast may acquire some of Time Warner’s assets from Charter. The exciting three-way deal between Charter, Time Warner and Comcast seems to be acceptable in the regulatory process, but only time will tell how this ambitious deal fructifies.
