If Comcast Jettisons Time Warner Cable Offer, the Future Is "Clear as Mud"

Brian Roberts Comcast CEO - H 2014
AP Photo/Susan Walsh

The obvious question that analysts are trying to answer: What now?

After jumping through hoops to satisfy the FCC, the Department of Justice and skeptical lawmakers – though apparently too few hoops – it appears the mega-merger of Comcast and Time Warner Cable has been sidelined, perhaps permanently.

The obvious question that analysts are trying to answer: What now?

“This rocks the world of television,” says Laura Martin of Needham & Co. “We’ll be talking about this for six months. What will Comcast do next? What happens to TWC? How does this affect Disney, Fox, CBS and Viacom? What’s Charter’s move?”

That last question refers to Charter Communications, the cable company controlled by billionaire John Malone that has already expressed an interest in merging with TWC.

Martin, in fact, predicts that Charter will bid for TWC within the next three months. Its opening bid, she says, will be about $130 per share, well shy of Comcast’s agreement to absorb TWC for nearly $159 per share.

Charter, though is a smaller company than TWC (market caps on Thursday were $20.6 billion vs. $41.8 billion), though Malone could manage the transaction through debt, equity and a variety of creative means.

Martin says that while $130 is about where the bidding will open, the price could go higher, but perhaps not as high as Comcast was willing to go, in part because there could be no other bidders. Also, because a Comcast-TWC marriage would more easily be blessed by regulators, and TWC shareholders and executives would have to bake that into the equation.

TWC, though, could opt to remain independent if Charter’s presumed bid isn’t much higher than $130 per share (TWC closed at $148.76 on Thursday), in which case TWC might try for some acquisitions of its own.

“If they go it alone, they have to decide if they want to get bigger,” says Martin. “But that’s three steps down the road, after they go through a Charter bid.”

The death-knell for the Comcast-TWC merger was an FCC decision to issue a “hearing designation order,” as first reported by The Wall Street Journal, which would have made the onerous regulation process even more so. Plus, the move signaled the FCC was worried that the deal was not in the best interest of consumers and that more concessions from Comcast would be required, way beyond its promise to sell some assets and beef up its initiatives to bridge the so-called “digital divide.” 

Consumers were skeptical of the merger from the get-go, and on Thursday activist groups were celebrating the perceived demise of the transaction.

“The collapse of this dangerous merger would be a giant victory for Latinos, and renew faith in U.S. regulators,” said Presente.org, a progressive Latino group with 300,000 members. “Our communities were the most vulnerable to this unprecedented merger that threatened to combine 19 of the top 21 Latino markets giving Comcast reach to over 90 percent of the Latino community. It is without question the most dangerous proposed merger Latinos have seen in recent memory.”

Another group, called Don’t Comcast the Internet, a joint venture of the Independent Telephone & Telecommunications Alliance and the NCTA-Rural Broadband Association, was more concise: “The record in this transaction supports only one outcome: ending the proposed merger of Comcast and TWC. Consumers and competition will be the big winners if this merger is indeed blocked or withdrawn.”

And a group called Free Press said: “This proposed merger was bad news from the beginning. Giving one company control over so much of America’s communications is neither pro-consumer nor pro-competition.”

Free Press also hopes a failed merger attempt will be “a lesson for the industry. Communications giants should stop trying to consolidate and instead focus on providing the fast, affordable and neutral Internet services that Americans demand.”

While shareholders are sure to lose out when Comcast backs away from its $45.2 billion offer, perhaps no one will lose more than TWC CEO Rob Marcus, who was reportedly set for an $80 million payday at the deal’s completion.

Making it even easier for Comcast to walk away is the fact that there is reportedly not a big break-up fee to pay should the deal fall apart.

Comcast’s next move, says BTIG analyst Richard Greenfield, will be to launch a virtual MVPD to compete with Dish Networks’ Sling, Sony’s Vue and upcoming services from Amazon.com and Apple.

Comcast also might want to beef up its content business, so it might make a play for Lionsgate or MGM, Greenfield says. Netflix, now a $34 billion company, might also make an interesting acquisition target.

If Comcast doesn’t opt for one big acquisition, it could instead assemble some smaller ones, perhaps in the digital-TV space. He says Vice Media and Glenn Beck’s The Blaze could be targets for Comcast.

When the Comcast-TWC merger is officially dead, perhaps as early as Friday, says MoffettNathanson analyst Craig Moffett, the future becomes “clear as mud” for these companies.

Moffett says that while a Charter bid is “the easiest call to make,” he also notes that TWC in the past has shown no appetite for being acquired by Charter. “Our suspicion is that that hasn’t changed,” he wrote in a note Thursday.

Charter offered TWC $127 a share in October, 2013, and, with market increases since then, a similar bid should be $164, probably more than Charter is willing to offer.

Comcast has 22.4 million video subscribers compared to 10.8 million for TWC. Charter has 4.3 million but was about to acquire Bright House Networks, which has 2 million video subs.

Charter’s acquisition of Bright House, though, was contingent on Comcast’s purchase of TWC, so that deal, too, could be called off. If it is, TWC might want to make a bid for Bright House.

Then again, TWC might bid for Cablevision, a $5.3 billion company, says Moffett.

Like the analyst says: Clear as mud.

Email: Paul.Bond@THR.com