) has reached an agreement with
Charter Communications Inc.
) to divest 3.9 million subscribers as a strategic decision to
ease the regulatory concern over its proposed merger with
Time Warner Cable Inc.
In Feb 2014, Comcast had reached an agreement with Time Warner
Cable to acquire the latter in an all-stock deal valued at around
Liberty Media Corp.
), which controls a 27.3% stake in Charter Communications, was
also aggressively pursuing the idea of Charter Communications
taking over Time Warner Cable. However, Charter Communications
lost to Comcast in the bid.
The merged entity of Comcast and Time Warner Cable will have
around 33 million pay-TV (video), 32 million high-speed broadband
(Internet) and 16 million telephony (voice) subscribers. Thus,
the deal is expected to face tough scrutiny and close monitoring
by the Federal Communications Commission (FCC) and is expected to
close within a year.
In order to avoid antitrust restriction, Comcast has decided
to divest around 3.9 million Time Warner Cable video subscribers
to maintain its total market share at 30% of the U.S. pay-TV
industry. Comcast is expected to derive a significant $1.5
billion of operating synergies from this merger of which 50% may
be realized within the first year of merger.
The Comcast-Charter deal has been divided into three parts.
First, Charter Communications will acquire 1.4 million Time
Warner Cable subscribers for $7.3 million in cash after the
merger of Comcast and Time Warner Cable closes.
Second, approximately 1.6 million existing Charter
Communications and Time Warner Cable subscribers will be swapped
in a tax-efficient exchange to expand the geographic reach of
both entities. Third, Comcast will spin-off another 2.5 million
subscribers as a new entity in which Comcast will hold a 67%
stake and Charter Communications will acquire the remaining
The total deal size will stand at approximately $20 billion.
Following the subscriber takeover, Charter Communication will
become the second largest pay-TV operator in the U.S. with around
5.7 million subscribers.
We believe that this deal will benefit both the companies.
Comcast will be able to avoid antitrust measurers. The company
has already assured the FCC that its merger with Time Warner
Cable will not result in higher prices for cable TV and
high-speed Internet packages.
On the other hand, Charter Communications will achieve
necessary scale to remain competitive in the intensely
competitive U.S. pay-TV market.
Currently, Comcast, Time Warner Cable, Charter Communications
and Liberty Media, all carry a Zacks Rank #3 (Hold).
CHARTER COMM-A (CHTR): Free Stock Analysis
COMCAST CORP A (CMCSA): Free Stock Analysis
LIBERTY MEDIA-A (LMCA): Free Stock Analysis
TIME WARNER CAB (TWC): Free Stock Analysis
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