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Will Comcast Actually Buy Time Warner Cable or Will this be Charter’s Wake up Call?

Will Comcast Actually Buy Time Warner Cable or Will this be Charter's Wake up Call?

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.

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