The much talked about and controversial deal between cable giants Comcast (CMCSA, Financial) and Time Warner (TWX, Financial) has reached U.S. Department of Justice to discuss the concerns raised over the $45 billion merger. Both the companies are preparing to meet DoJ next week to negotiate the deal as well as convince the officials on the positive sides of it.
The havoc over the deal
The deal wherein Comcast is to take over Time Warner Cable was announced officially on Feb. 13, 2014 valued at $45.2 billion in the form of a stock swap. The deal has to get clearance from both US Department of Justice as well as Federal Communications Commission (FCC) which the companies expect to get through by mid-2015. However, the deal was postponed for evaluation for the third time by FCC. Charter Communications (CHTR, Financial) also had bid to buy Time Warner which wasn’t successful as Comcast’s bid was higher. Charter, however, kept challenging the deal on the grounds of creation of unhealthy competition and market monopoly if the merger happens. Charter’s accusations stopped when, on April 27, 2014, Comcast agreed to Charter acquiring a portion of Time Warner’s cable subscribers.
Going by the deal, Comcast will sell 1.4 million subscribers of Time Warner Cable to Charter Communications for about $7.3 billion and would also divest 2.5 million subscribers to a new company, in which Comcast will have 66% holding and charter communications will have 33% holding, to manage its network and customers. The plan is to ultimately swap 1.6 million subscribers of Comcast and Charter.
If sources are to be believed, both the Justice department which evaluates antitrust concerns as well as the FCC, which decides whether the merger is in public interest, are skeptical about the merger and might disqualify it. Although Comcast and Time Warner are assured of providing possible connections and potential remedies to save the merger, the general notion is that mergers are put on FCC and DoJ table for killing and not for reviewing. The officials of DoJ and FCC are of the view that this merger will lead to too much power in the hands of the two companies involved vis a vis the Broadband and Internet market. It can also cause unfair advantage to merged companies with regards to TV Cable viewing as well as to new market entrants who offer video programming online.
If the merger happens, the newly created company would hold 30% of the pay TV market and 57% of the broadband service. While the former can still be managed, the latter calls for attention as it may get strictly scrutinized, too. FCC has sent the deal for hearing to Administrative law judge.
Clarifications given by Comcast and Time Warner
Comcast has a different theory put together in favor of the merger. The company doesn’t think of the deal to be anti-competitive at all. In fact, the merger will help combat other emerging threats like those by Apple Inc. (AAPL, Financial) and Netflix Inc. (NFLX, Financial) who have rolled out services that are against traditional pay TV service.
The outlook
It seems the DoJ officials will scrape off the deal in the name of public interest. The meeting is due for next week when the fate of the much hyped merger will be decided. Following the developments, shares of Comcast fell 2.1% to close at $58.42 and Time Warner share came down 5.4% to close at $149.61%.
