I don’t believe this deal will happen the way its currently structured and here’s why.
First off, there are too many volatile variables in this deal in its current form; the all stock price, softening equities market and other very motivated buyers in the market.
I believe that this is only the first move in a larger plan. Time Warner Cable is utilizing a very smart strategy to maximize the sale price for the company; witness that Rob Marcus, the CEO, is a former Mergers and Acquisition attorney.
So the battle for Time Warner Cable has come to an end, or has it? Yesterday Comcast announced a $45.2 billion dollar deal to purchase Time Warner Cable, representing a share purchase price of $158.82 per share.
This is a significant increase from Charter Cable’s previous offers of $132.50 per share.
But there is a big difference. Charter’s offer was substantially cash and Comcast’s is completely a stock deal. Also, we’re now talking about a major anti-trust review. Even with a sell off of 3 million subscribers Comcast would still control 30% of the industry nationwide. Given the lack of competition in each market this does not sound like a slam dunk.
A year ago Comcast was selling for $40 per share and its up 38% since then. Could the Time Warner Cable offer be an apparition? With the stock market showing a 30% increase for 2013 and the expected softening of the equities market for 2014 could the Time Warner deal really be a $132 all stock deal in disguise?
Combine any perception of dilution with market softness and as little as an 18% decrease in Comcast’s share price and we’re back to the $132 Charter offer based on the 2.875 multiple of Comcast shares offered for each TWC share.
If that happens Charter could be back in the running.
Here’s, what I believe, are more probable scenarios:
A. Charter ups their all cash offer to $142, TWC refuses, deal drags on, TWC stock suffers and final deal is struck to sell part of the company to Comcast and part to Charter minimizing the anti trust issues and feeding each companies acquisition appetite. Total deal proceeds $43 Billion in cash.
B. Charter ups their cash offer to $151 and ensuing pressure causes TWC to force Comcast to add cash to their offer, Comcast throws in more cash and TWC/Comcast sell off 5 million subs to get the deal done with Comcast.
Given that there are only a few companies to acquire in the cable industry I don’t think we have heard the last of this
deal. Time Warner has a number of top markets in the US and its hard to believe that John Malone and the rest of the industry
will just wish the Comcast/Time Warner deal good luck and send a bottle of champagne.