The US’s second-largest cableco Time Warner Cable (TWC) is reportedly now open to merger talks with Charter Communications in the wake of Comcast’s failed takeover bid. TWC believes smaller rival Charter, the fourth-largest cableco by revenue, may…
The US’s second-largest cableco Time Warner Cable (TWC) is reportedly now open to merger talks with Charter Communications in the wake of Comcast’s failed takeover bid.
TWC believes smaller rival Charter, the fourth-largest cableco by revenue, may be able to improve on its takeover attempt two years ago, Reuters cited people familiar with the matter saying.
The TWC board rebuffed Charter’s US$132.50 per share offer, valuing the company at US$37.3bn, in January 2014 following a lengthy period of acrimonious negotiations. Comcast, the country’s largest cableco, then swooped in as a white knight with its US$159 per share offer, leading to the US$45bn takeover agreement it abandoned last week after regulators said it wasn’t in the public interest.
TWC considers Charter’s stock to be more valuable now than it was last time around, however it is also open to deals with other companies, the report stated.
According to a Dow Jones Business News report, TWC approached Atlanta-based cable TV provider Cox Communications about a potential merger, but Cox wasn’t interested.
Charter is reportedly still keen on a TWC takeover and, one newswire reported, has already contacted banks about financing.
TWC and Charter were not immediately available for comment.
Charter-TWC more likely to please regulators – analysts
Analysts have said they believe a Charter-TWC deal could win regulatory approval.
Guggenheim Partners analyst Paul Gallant said in a note to investors that while such a transaction carries some regulatory risk, he would expect both the FCC and Department of Justice to clear it.
He noted that regulators want at least two companies in a sector, even if they don’t compete directly, with sufficient scale to implement their own business practices.
“We think this bodes well for Charter-TWC by creating a company with sufficient scale to rival Comcast in how it deals with subscribers, competitors and others in the ecosystem.”
In addition, while regulators were concerned about their ability to police Comcast-Time Warner on merger conditions, he said compliance seems as though it would be less than an issue with a Charter-TWC deal.
A Charter-TWC combo would also be only 70% of the size of Comcast and therefore have less leverage to insist on anti-OTT provisions, Gallant added.
“Promoting OTT was the FCC/DOJ’s top focus in Comcast-TWC … But Charter was not involved in the Netflix interconnection dispute and hasn’t had the friction with authenticating online video distribution (OVD) apps that concerned the FCC/DOJ in Comcast-TWC,” he said.
However, he expects other sector player’s position on a Charter-TWC merger to have an impact as he believes the “aggressive opposition” to the Comcast-TWC deal by the likes of Dish, Cogent, Level 3 and Discovery to have influenced the FCC and DoJ’s decisions to block it.
FCC chairman Tim Wheeler’s repeated mentions of cable’s dominance in the broadband sector is among the other potential threats to a Charter-TWC deal, he said.
New Street Research analyst Spencer Kurn said a Charter-TWC deal is very likely to succeed in the aftermath of the failed Comcast deal.
“We believe the regulators concluded that the Comcast/TWC deal would have stifled the OVD market due to the sheer number of resulting subscribers and Comcast’s relationship with NBCU.
“Since a Charter/TWC transaction would result in fewer total subscribers than Comcast has today and they do not own content assets, we think this deal poses less of a threat to the concerns of regulators and is likely to be approved.”
