Comcast to Buy Out Time Warner Cable [Updated]

$45.2 billion deal will unite two top MSOs

In a tweet heard ‘round the cable universe, CNBC’s David Faber on Wednesday night said that multiple sources have told him that Comcast is preparing to make a formal overture to take full control of Time Warner Cable. Hours later, both sides confirmed the news.

In a joint statement issued Thursday morning, the nation’s two top cable operators announced that their respective boards had approved a plan for Comcast to acquire 284.9 million outstanding shares of Time Warner Cable for $158.82 per share, in an all-stock deal worth $45.2 billion.

According to both parties, the transaction will generate approximately $1.5 billion in operating efficiencies. The new cable company that arises out of the deal will be spearheaded by Comcast president and CEO Neil Smit.

Comcast chairman and CEO Brian Roberts and newly minted Time Warner Cable CEO Rob Marcus discussed the transaction with Faber Thursday at 7 a.m. EST, in a segment that aired on CNBC’s Squawk Box.

Roberts repeatedly addressed the regulatory concerns that would likely be stirred up by the union between the No. 1 and No. 2 MSOs, noting that the 30 percent ownership cap that once held sway is no longer in place.

“The horizontal ownership cap that the FCC used to have … was vacated by the courts twice,” Roberts told Faber. “This transaction—we don’t compete. We’re not in the same markets … we’re not in any of the same ZIP codes with Time Warner. There is no overlap.” 

While Faber noted that the proposed transaction is “sure to get [a] tough review” from the Federal Communications Commission, Roberts confirmed that Comcast is willing to divest 3 million subscribers to satisfy any regulatory issues that might sour the deal. 

Roberts noted that Comcast had faced similar scrutiny in 2001, when it bought the old AT&T Broadband systems. Five years later, Comcast and TWC closed on a long-percolating deal to split the assets of the bankrupt Adelphia Communications Corp. for $12.5 billion in cash and 16 percent of TWC’s common stock. 

Should the deal sail through all requisite approvals, it will create a cable supercolossus. Comcast closed out 2013 with 21.7 million video subscribers, while TWC serves 11.2 million TV subs.

The Comcast-TWC deal brings an end to months of speculation about Charter Communications’ desire to snap up the nation’s second-largest cable operator. 

Charter in January offered to acquire TWC for $132.50 a share, although board members were said to be willing to bump the price up by a factor of $10 a pop. That still wasn’t nearly satisfactory to the subject of the takeover bid, which had been angling for $160 per share.

(Roberts sidestepped a question about besting cable cowboy and Liberty Media chairman John Malone, who in the 1980s helped carve out the MSO landscape as the head of TCI. The two men have been rivals for more than two decades.) 

One may well imagine that TWC would have not been so ripe for the picking if it hadn’t embarked on an ill-advised 30-day carriage duel with CBS. The operator lost 306,000 subscribers and some $122 million in revenue in the wake of its joust with Les Moonves & Co.

“The CBS dispute apparently took a much larger toll than anyone would have imagined,” said MoffettNathanson analyst Craig Moffett shortly after TWC issued its Q3 2013 earnings report. “That’s bad news for future programming negotiations, and not just for TWC. Every cable operator now goes to the table knowing that CBS not only won the war, but left TWC badly damaged even for having fought the fight.”

When asked to speculate how the CBS Corp. CEO would react to this morning's news, Marcus was slightly combative. “Look, I find this issue of programmers somehow being disadvantaged by the combination somewhat ironic, given what we, as multichannel video providers, have all experienced over the last five to 10 years with escalating programming costs the way they have,” Marcus told Faber. “I don't think we have to worry about programmers defending themselves here.”

When Faber pushed both executives to predict how programmers might react to their consolidated market share, Roberts said that there would be a thorough review and reiterated that the combination would not reduce competition in any way.

“We’re hopeful we can get this deal approved,” Roberts said, adding that the two sides wouldn’t have tried to piece together a transaction if they did not already believe they could secure a thumbs-up from the FCC.

The deal is expected to close by the end of 2014.