April 28, 2014
Comcast Looks To Smooth Regulatory Concerns Over TWC Merger By Dropping Nearly Four Million Subscribers
Peter Suciu for redOrbit.com - Your Universe Online
On Monday the largest cable TV provider in the United States agreed to cut the cord on some 4 million subscribers as a way to help smooth regulatory concerns as it looks to complete its acquisition of Time Warner Cable.
The Wall Street Journal reported that Comcast Corp. had reached a deal that would net Charter Communications with 3.9 million subscribers, including about 1.4 million existing Time Warner Cable customers in a deal worth around $7.3 billion in cash.
That is just a fraction of the $45 billion that Comcast is reportedly paying to acquire TWC.
The Journal also reported that Comcast will create a new publicly traded company that will serve another 2.5 million existing Comcast customers, and that Comcast shareholders would own about 67 percent of that new company, while Charter Communications would control the remaining 33 percent. The new jointly owned venture would have an enterprise value of $14.3 billion.
Some cable customers may find more than just a new channel lineup as this deal progresses. Some 1.6 million TWC customers will be swapped for 1.6 million Charter subscribers in a like-kind exchange. Comcast and Charter have said this will allow for improvements in the geographic footprints.
All of this is also contingent on the Comcast-Time Warner merger being completed. Comcast noted in a statement that the agreement has been approved by the boards of directors of both companies. The transactions are all subject to required regulatory approval including those from the FCC.
“Today’s Agreement follows through on our willingness to divest subscribers, while also marking an important step in our merger with Time Warner Cable,” said Brian Roberts, Chairman and Chief Executive Officer, Comcast Corporation, in a statement. “These transactions enable us to deliver meaningful value to our shareholders. The realignment of key cable markets achieved in these transactions will enable Comcast to fill in our footprint and deliver operational efficiencies and technology improvements. We look forward to working with the management teams at Time Warner Cable, Charter and the new entity to close these transactions and ensure a smooth transition for the customers and employees of all companies.”
The Comcast-Charter deal could be a way of ensuring regulatory approval, and Reuters reported that some analysts have called the deal a “re-emptive move” by Comcast.
“Comcast wanted to do this deal now with Charter so it could get in front of regulators at the Justice Department and the FCC at the same time as the Time Warner Cable deal,” a source familiar with the matter told Reuters news agency.
The divestments of Comcast customers will come mostly in the Midwest, and this could deliver about $19.5 billion in value to its shareholders.
The Wall Street Journal reported that through this deal Charter will acquire new systems in Ohio, Kentucky, Wisconsin, Indiana and Alabama, while divesting itself of systems in California, New England, Tennessee, Georgia, North Carolina, Texas, Oregon, Washington and Virginia. Meanwhile, the new joint company will own systems that are near Charter systems in Michigan, Minnesota, Indiana, Alabama, Eastern Tennessee, Kentucky and Wisconsin.
“For Charter, this deal is a transformative event and sets them up over time to consolidate the balance of the rest of the cable industry,” Pivotal Research Group analyst Jeff Wlodarczak told Reuters. He added that the deal would be good for both parties.