Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) is in the early stages of a takeover bid for Time Warner Cable Inc (NYSE:TWC), a deal that would unite the country’s two largest cable providers if it were allowed to go through, reports Alex Sherman and Edmund Lee for Bloomberg. Time Warner Cable stocks were up nearly 10% on the news.
Comcast has a clear financial advantage
Even if Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) decides not to acquire Time Warner Cable, or isn’t allowed to by regulators, the threat of a deal could also force Charter Communications, Inc. (NASDAQ:CHTR) to increase its own bid for Time Warner Cable Inc (NYSE:TWC). Comcast has a clear financial advantage because it wouldn’t need to borrow as much money to make the deal work, while Charter would be taking on debt to buy a company that is already significantly leveraged. Comcast is currently worth about $168.5 billion, compared to Time Warner Cable Inc (NYSE:TWC)’s enterprise value of $61 billion and Charter’s value of less than $28 billion.
“Comcast has an advantage through sheer size, and they could make an offer that would be far less debt-laden than one from Charter,” said Craig Moffett, founder of research firm MoffettNathanson LLC. But the Federal Communications Commission may decide that giving Comcast so much control over the market hurts consumers by eliminating competition and raising the bar for new entrants into the market.
“The FCC would be concerned that Comcast would have de facto control over what content would be available on television,” Moffett said. “If a TV programmer couldn’t cut a deal with Comcast, they wouldn’t exist. Comcast becomes a behemoth.”
Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) has signaled that they don’t think regulators will stop the deal, but acknowledging a potential problem would only give the FCC ammunition in case there are hearings down the road. A previous FCC restriction that prevented any cable company from controlling more than 30% of the cable market was struck down in 2009, but the FCC still has the authority to block either of these deals. And if Comcast and Time Warner Cable Inc (NYSE:TWC) merge, the combined company will control about three quarters of the cable market, far more than the 30% limit that was previously imposed. Even without an existing line in the sand, that might just go too far.
