Comcast shares were down $2.28 at the close of trading Thursday to $52.97 — no surprise given the typical declines whenever a company unveils a hefty acquisition. TW Cable shares shot up more than $9.49 to close at $144.80, in what is likely to be a final sprint of the run-up during the past few months on acquisition rumors. Comcast’s $45.2 billion buyout offer values TW Cable at $158.82 per share.
Some were skeptical of Comcast’s claim that the union would realize $1.5 billion in operating efficiencies and $400 million in capital expenditure savings within three years.
“We struggle to see where, precisely, savings of this magnitude are going to come from,” wrote veteran media analyst Craig Moffett in a research note titled “Comcast and Time Warner Cable: Of White Knights and Brotherly Love.”
Rich Greenfield, media analyst with BTIG Research, raised the speculation that the merger would prompt Comcast to split into two distinct operating entities, distribution and content, as early as next year.
Janney Capital Markets analyst Tony Wible rated Comcast shares a buy with a price target of $55.24. He called the deal a “defensive maneuver” on Comcast’s part to take help control costs and take out a potential future competitor as cable operators move to offering more virtual services that are not as bound to distinct geographic territories as traditional cable service.
Wells Fargo Securities analyst Marci Ryvicker rated Comcast to “outperform” and cited the possibility of “nice upside” to the projected cost savings. Nomura Research’s Anthony DiClemente did not offer a rating but focused comments on the benefits of Comcast’s technology being applied to TW Cable subs. He also disputed the assumption that Comcast would immediately be able to hammer programmers on carriage fees, noting that the company has not been nearly as combative in those deals as TW Cable.
Thursday’s announcement ends the cliffhanger that had surrounded the fate of TW Cable — barring a last-ditch effort by another suitor. The drama surrounding the hunt for the company has been a compelling soap for investors who like a good media takeover brawl — something that the biz hasn’t had much of in recent years.
Charter Communications kicked off the M&A chase of TW Cable last summer. After several offers were rejected by TW Cable brass, Charter stepped up its public pressure campaign and initiated a proxy fight — which meant a war of words. Meanwhile, Comcast snuck in with a richer, friendlier offer that came together quickly in the last two weeks, according to sources.
There was immediate speculation about the deal spurring more M&A activity for MVPDs and content owners alike — a byproduct that only added more reasons for media watchdog orgs to condemn the notion of allowing the nation’s two largest cable operators to tie the knot.
Analyst Michael Nathanson suggested that in fact the impact on content providers will be muted, in the short term.
“Over the next few years, the impact of (Comcast-TW Cable) will produce minimal negative impact to the content industry as we expect Comcast and Time Warner Cable to ‘play nice’ as regulators, consumers, politicians and content owners scrutinize their behavior,” he wrote.
Moreover, as Comcast bulks up in response to competition from SVOD providers, the company will be motivated to improve the level of streaming services and mobile content access that it provides to retain subscribers.
“This deal should improve consumers’ ability to find better non-linear content solutions from the traditional distribution industry,” Nathanson wrote.
The losers in the near term include Charter, which at present ranks as the nation’s fourth-largest cable operator. Charter doesn’t have a lot of options to bulk up in a big way to combat the pressure from Comcast’s NBCUniversal, 21st Century Fox and Disney for ever-higher affiliate fees for channels. And that pressure is only going to increase as the most well-endowed content owners look to scale up even more in response to Comcast-TW Cable.
“Scale is increasingly becoming more important in securing higher affiliates fees from the distribution industry,” Nathanson wrote. “By our math, three companies (Disney, 21st Century Fox and NBCU) will garner almost two-thirds of the incremental affiliate fees paid from 2013 to 2015. This deal will force those with more limited scale to reconsider their M&A options.”
Comcast shares were down more than $2 to around $53 in trading Thursday — no surprise given the typical declines whenever a company unveils a hefty acquisition. TW Cable shot up more than $9 to around $145, continuing the stock’s run during the past few months as acquisition rumors heated up.