There are reports that Comcast, the nation’s largest cable company, is about to get even bigger. According to the New York Times, the Philadelphia-based cable company is making a bid for Time Warner Cable. The deal would be worth $45 billion in stock.
Time Warner has been under pressure for almost a year as Charter Cable and John Malone’s Liberty have been pushing for a hostile take over of the company. Time Warner, which has about 11 million customers, has seen its share of customers leaving. According to the latest public filings, residential video subscribers were down 6% as of September last year.
It didn’t help that subscribers suffered through a month-long blackout of CBS this summer when the two sides were unable to agree on a price Time Warner would have to pay CBS for the right to show its programming. The deal was finally consummated just before football season started.
The Comcast deal reportedly offers $160 per share. TWC is currently trading at $135 per share. Charter had been trying to buy the company at $132.50 per share according to the New York Times.
The combined Comcast Time Warner would be the biggest cable company in America which is sure to bring down scrutiny from Washington. While the merger wouldn’t eliminate competition in any given market (only one cable company can control a market at a time) it will give Comcast incredible bargaining power when it come to things like negotiating retransmission deals with CBS.
Comcast is also a huge owner of content. The $144 billion (market cap) company owns NBC, Universal and cable networks like E!, USA and Bravo. It would be no surprise if regulators felt uncomfortable about a company that big now being the sole cable provider to 30 million Americans.
Of course Comcast will likely argue that anyone can chose to go with a satellite provider instead of cable or cut the cord all together. Because of the increased competition cable faces today, Comcast could benefit from operational efficiency by combining the two companies. By making a lot of workers redundant, the company could cut costs.
Eventually, Comcast could become just a giant pipe into people’s homes that offers content mostly through the Internet through virtual video providers. According to a recent report by BTIG’s Richard Greenfield (subscription required):
While we believe overall multichannel video subscription homes is in secular decline (at approximately 100 million today), we believe cable should be able to leverage its broadband prowess to reverse market share losses. We also see the power of the broadband pipe into the home enabling the industry to sell an increasing array of additional services.
While Time Warner management didn’t seem thrilled by the Charter overture because the price was too low, the company seems willing to sell. Comcast will likely have to agree to get ride of some of its customers which could work to Charter’s advantage as there aren’t that many cable companies left any more to pick up the slack.
What do you think about a combined Comcast Time Warner cable giant?
Source: Forbes Business