(USA Today) -- Comcast and Time Warner Cable confirmed Thursday that they will enter
into a $45.2 billion deal to combine the nation's two largest cable
companies, a mammoth proposal that will trigger close scrutiny from
Swooping in to top a competing bid by Charter
Communications, Comcast will pay 2.875 of its shares to TWC
shareholders. The companies' respective board of directors have approved
the all-stock agreement, which will see all of TWC's 284.9 million
shares acquired at a value of about $158.82 per share. Current TWC
shareholders will own about 23% of Comcast's common stock.
combination of Time Warner Cable and Comcast creates an exciting
opportunity for our company, for our customers, and for our
shareholders," said Comcast Chairman and CEO Brian Roberts, in a
statement. "In addition to creating a world-class company, this is a
compelling financial and strategic transaction for our shareholders."
of the start to regular trading on Thursday, Comcast's shares advanced
just over 2% while Time Warner Cable's pre-market stock leaped nearly
The transaction will
generate about $1.5 billion in "operating efficiencies" that will add to
Comcast's cash flow per share. With the shares exchanged, the merger
will be tax free to TWC shareholders, the companies noted. The companies
expect to close the deal by the end of 2014.
in the cable industry has been anticipated in recent years, as pay-TV
operators face challenges from content suppliers seeking higher fees and
consumers emboldened by new video options online. TWC has had numerous
customer service and operational issues that have hampered its
reputation, exacerbated last year by its high-profile fight with and
decision to drop CBS over retransmission fees.
Comcast sought to frame the deal as one in which customers will benefit
from improved technology, enhanced resources and better execution. The
combined company plans to bring "a superior customer experience within
the highly competitive and dynamic marketplace in which we operate,"
In most U.S. markets, consumers have an option of
one cable service provider and/or satellite operators, Dish Network and
DirecTV. Comcast and TWC's service markets don't overlap. But the
combined company would serve nearly one-third of the U.S. pay-TV
households and have enhanced leverage against cable networks, TV
stations and independent content creators that want to be included in
its lineup of offerings.
To assuage antitrust regulators, Comcast
said it'll acquire TWC's 11 million cable TV subscribers but "divest
systems serving" about 3 million. It'll result in Comcast adding about 8
million subscribers in the deal, bringing its subscriber total to about
30 million, it said.
TWC, whose markets include New York City,
Southern California, Texas and the Carolinas, has about 15 million total
customers, including those with video, data, business services,
advertising clients and others that it supports through a partnership
with BrightHouse Networks.
"A company of that size would arguably
have de facto control of what content could and couldn't exist in the
U.S.," wrote Craig Moffett, an industry analyst at Moffett Nathanson
Research, in a report last year in anticipation of the two companies'
merger. "A programmer that failed to get a distribution deal with
Comcast arguably wouldn't be economically viable."
owns about 20% of the U.S. pay-TV market, is already the nation's
largest Internet and cable TV provider, but it also owns NBCUniversal, a
movie studio and several cable channels.
Critics of the merger
were quick to voice their opposition. "It is simply dangerous for a
large proportion of our nation's critical communications infrastructure
to be in the hands of just one provider," said John Bergmayer, senior
staff attorney at Public Knowledge, a consumer technology advocacy
organization. "If Comcast takes over Time Warner Cable, it would yield
unprecedented gatekeeper power in several important markets. An enlarged
Comcast would be the bully in the schoolyard."
After the deal
closes, the combined company's cable operations, to be led by current
Comcast executive Neil Smit, will extend some current Comcast products
to TWC customers in key markets, including its cloud-based set-top box
and 50,000 video on demand choices on television, as well as 300,000
streaming choices online.
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