What's Next After the Failed $45B Comcast-Time Warner Cable Merger
Comcast looks like a buyer (Netflix?) and Time Warner Cable a target (Charter), but the tables could turn quickly.
This story first appeared in the May 8 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
TIME WARNER CABLE
Sell to charter! A bid from Charter, a smaller rival partially controlled by John Malone's Liberty Media, almost is inevitable. Investors are so sure of it that when the Comcast merger fell apart April 24, shares of TWC actually rose 4 percent to $155.26, about $4 less than Comcast was going to pay. But analyst Laura Martin of Needham is predicting that Charter's offer will be for no more than $135 a share. And how high can it go if no one else bids? "We foresee no bidders for TWC other than Charter," she says.
Don't sell! TWC CEO Robert Marcus could go it alone, in which case a restructuring is in order. BTIG analyst Richard Greenfield notes that a letter to employees the day the merger fell apart infers such a move. The memo warns of "continued distractions in the coming weeks."
Become a buyer! TWC might think about purchasing Bright House Networks, which has 2.5 million subs in Florida, Alabama, Indiana, Michigan and California that might become available. Charter was set to acquire Bright House for $10.4 billion — if Comcast got TWC.
Buy Netflix! Comcast CEO Brian Roberts has "an insatiable appetite for acquisitions," says BTIG's Greenfield, who has several suggestions. Netflix perhaps is the most intriguing target, though Comcast would have to offer a hefty premium to the online streamer's $33 billion market cap, and it would want to ensure CEO Reed Hastings and chief content officer Ted Sarandos stay aboard. "Comcast could further the reach of Netflix domestically by integrating the service into its set-top boxes," says Greenfield.
Buy a studio! Comcast, which already owns NBCUniversal, could chase more content by going after Sony Pictures, Lionsgate, MGM or, if Viacom would part with it, Paramount. More ambitiously, it could pursue that other Time Warner. 21st Century Fox's $75 billion offer was dismissed as absurdly low, but Time Warner's market cap as of April 24 was $71 billion.
Buy web content! Comcast seems poised to offer a "virtual MVPD" to compete with Sony's Vue, Dish's Sling and upcoming services from Verizon and Apple. Greenfield advocates buying online content creators, like Vice Media or Glenn Beck's The Blaze.
WHO WINS MOST IN THE AFTERMATH
Content. Comcast-TWC would have had the leverage to slow the rising cost of programming. "Content companies seem to be winners," says Steve Birenberg of Northlake Capital Management. "They get better affiliate and retransmission deals from a smaller Comcast. Of course, if Malone is able to engineer a roll-up of the rest of cable, then the affiliate fees get pressured from another end."
Comcast? Despite the obvious setback, several analysts say Comcast still could get that bigger footprint and increased leverage by purchasing cable providers in foreign markets.