Comcast is closing in on a deal with Charter Communications to carve up Time Warner Cable’s operations, Bloomberg reported Monday — but such a transaction would happen only if Charter’s hostile takeover for TW Cable actually transpires.
Under the proposed pact, Comcast would buy Time Warner Cable’s New York City, North Carolina and New England cable assets from Charter, according to Bloomberg, citing anonymous sources. Such a deal would be contingent on Charter successfully completing a deal to acquire Time Warner Cable, whose management and board have rejected all of Charter’s proposals to date as insufficiently low.
A tag-team of Comcast-Charter joining forces for Time Warner Cable is “genuinely a game-changer,” Craig Moffett, senior analyst with Wall Street research firm MoffettNathanson, wrote in a research note. It increases the likelihood of a successful deal for TW Cable, according to Moffett. That’s because a cash infusion from Comcast would result in a combined Charter/TWC that is “materially less levered”; or, alternatively, Charter could increase the cash component of its bid (using cash that will be received from Comcast after closing).
“Put simply, this would make it a whole lot harder for TWC’s Board to ‘just say no,'” Moffett wrote.
Two weeks ago, Charter went public with an offer to acquire Time Warner Cable in a deal that would be worth more than $61 billion, an offer the bigger operator called “grossly inadequate.” Charter, whose two previous bids also were rejected, is seeking to win the support of Time Warner Cable shareholders.
Charter has a huge ally in John Malone, whose Liberty Media took a 27% stake in Charter last year. Malone has been a vocal proponent of consolidation in the pay-TV biz, and specifically has touted Charter’s potential to merge with other MSOs to gain operational scale.
Since Charter announced its bid for Time Warner Cable, the two companies have sparred in public over the proposed terms. Charter has offered $82.54 per share in cash plus the equity exchange of 0.372 Charter shares, which it claims is worth $132.50 per share to Time Warner Cable shareholders. TW Cable has responded that the latest Charter undervalues TW Cable: Whereas Comcast’s 2002 acquisition of AT&T Broadband had a value of 21 times earnings before interest, taxes, depreciation and amortization (EBITDA), Charter’s most recent offer for TW Cable is 7.2 times projected 2014 EBITDA.
According to the Bloomberg report, Charter would sell off the three TW Cable systems to Comcast in order to raise cash after borrowing $20 billion in debt to finance the initial deal.