As the Department of Justice and Federal Communications Commission are in the final stages of reviewing the deal; Comcast (CMCSA, Financial) and Time Warner (TWX, Financial) are set to meet with the officials on Wednesday. Representatives of the company will meet the United States Department of Justice to discuss the competitive concerns about the $45 billion merger between the two cable giants.
Merger Process
This is the first time the two companies will meet the officials to negotiate concessions about the concerns, after the deal was announced fourteen months ago. DOJ and Federal Communications Commission both are concerned that the combined company will hold too much power in the Internet broadband market creating a market imbalance. The company will have an unjust competitive advantage over the newcomers in the market and TV channel owners. The Federal Communication Commission is considering the option of putting up the merger for hearing, which puts the fate of the merger into the hands of an administrative law judge. This move will signify that the FCC is not convinced that the deal would be in the best of public interest.
The new company created by the merger of Comcast and Time Warner Cable will be the largest cable and internet provider in the US. It will control 57% of the broadband internet market and 30% of the pay-TV market. Comcast and Time Warner Cable referred to the deal as a straightforward cable merger as the two companies do not operate in the same geographical regions. The major concern with the officials is the increased share in the broadband internet market which might create monopoly practices.
Comcast has asserted that the merger is not anti-competition and is not against the new entrants. It is necessary for the company to compete against the threats emerging against the traditional pay-TV from businesses like Netflix (NFLX, Financial) and Apple Inc. (AAPL, Financial). Federal Communications Commission decides whether the deal is in public interest or not, and DOJ reviews the antitrust issues. FCC and DOJ are in final stages of scrutinizing the deals and have asked media agencies about the acquisition.
Actionables
The proposed acquisition of Time Warner Cable by Comcast was announced in February last year estimated to be worth about $45.2 billion to be paid in stock. Comcast filed a public interest statement to the Federal Communications Commission in April 2014. The companies are currently waiting to obtain clearance from both FCC and DOJ. Comcast would be acquiring Time Warner Cable by swapping each of Time Warner Cable's current 284.9 million shares for 2.875 shares of Comcast’s stock.
According to a report the officials at Department of Justice’s antitrust departments were leaning toward a recommendation to block the deal and the acquisition is expected to be killed. One possible concession is the divestiture of as much as 30 million subscribers which will be served by the merged company if the deal is successful. The companies have already agreed to sell systems serving 3.9 million subscribers to Charter Communications Inc. (CHTR, Financial) if the deal is completed.
Outlook
Time Warner Cable shares were down to 5.4 percent at $149.61 on the New York Stock Exchange on Friday, while Comcast shares declined 2.1 percent at $58.42. This could be the first of many meetings to follow for the two companies with the Department of Justice and Federal Communications Commission.
