Comcast chief executive officer Brian Roberts says merger is 'pro-consumer'

With connectivity increasingly important, Comcast's dominance looms larger.
With connectivity increasingly important, Comcast's dominance looms larger. (BARBARA L. JOHNSTON / File)
Posted: February 14, 2014

Comcast Corp. and Time Warner Cable Inc. formally announced Thursday that the two cable giants would merge in an all-stock transaction valued at $45.2 billion.

Comcast will control the combined entity in a deal that values Time Warner shares at $158.82 a share.

Comcast chief executive Brian Roberts said on Thursday morning in a conference call with analysts that a merger with Comcast and Time Warner Cable will create a "near national platform" for its cable-TV and broadband businesses with exposure in 43 of the nations top 50 TV markets.

The deal will eliminate no competitors in the market, Roberts said, adding that it would be "pro-consumer," "pro-competitive," and "in the public's interest."

Roberts said the deal would be good for consumers and shareholders in the two companies. "We believe we have invested into sustainable leadership in the cable industry," Roberts told the analysts on the 8:30 a.m. call. "We are indeed very excited."

Charter Communications Inc., which had launched hostile proxy fight for Time Warner Cable's board, does not seem willing to top the offer. Charter's most recent offer for Time Warner, rebuffed by its management and board, was for $132.50 a share.

"Charter has always maintained that our greatest opportunity to create value for our shareholders is to execute our current business plan, and that will continue to be disciplined in this and any other [mergers and acquisition] activity we pursue," the company said in a statement on Thursday morning.

Comcast says the deal will be "accretive" to profits – or boost them – and provide the public with benefits.

The all-stock transaction would be a coup for Comcast, allowing it to add the New York City and Los Angeles markets to its national cable-TV system and boost its cable-TV subscriber base to more than 30 million customers.

David Cohen, Comcast executive vice president who heads the company's government affairs apparatus, said the deal "may sound scary" but it was "approvable." He expected state and federal government regulators to scrutinize the deal over the next nine months.

In its statement, Comcast said that "in order to reduce competitive concerns," the company is prepared to divest systems serving approximately 3 million managed subscribers. The merger would net Comcast 8 million subscribers and bring its total to about 30 million.

The Washington Post, citing sources, said under the merger Comcast would keep its ownership of the entire cable marketplace to below 30 percent. That is the threshold for competition in licensing negotiations, the Post reported, citing a person familiar with the deal.

Public Knowledge, a consumer rights group, appealed to regulators to stop the merge and called a larger Comcast "the bully in the schoolyard."

"Comcast cannot be allowed to purchase Time Warner Cable," John Bergmayer, an attorney with Public Knowledge, said in a statement Thursday. "Antitrust authorities and the FCC must stop it."

"By raising the costs of its rivals and business partners, an enlarged Comcast would raise costs for consumers, who ultimately pay the bills," Bergmayer said. "It would be able to keep others from innovating, while facing little pressure to improve its own service. New equipment, new services, and new content would have to meet with its approval to stand any chance of succeeding."

Charter has made three offers for Time Warner Cable in the last year, the most recent for $132.50 a share. On Tuesday, Charter turned up the heat by proposing an alternate slate of directors for Time Warner Cable's board in a hostile proxy fight.

Cable maverick John Malone controls 27 percent of Charter. He has said the cable-TV industry must consolidate and enlarge to gain leverage in negotiations with content companies such as the Walt Disney Co. and CBS Corp., and to compete with Netflix.

Comcast reportedly had agreed to acquire some of Time Warner Cable's systems if Charter completed a deal for Time Warner Cable, but did not want to be part of a hostile takeover. A Comcast deal could value Time Warner Cable at about $158 a share, a substantial premium to Charter's last offer. Analysts don't believe that Charter had the financial wherewithal to substantially exceed $132.50 per share.

Time Warner Cable's top executive, Robert Marcus, who just ascended to that job Jan. 1, has said publicly that the company would consider an offer of $160 a share.

Filings show that the former mergers and acquisitions attorney is set to pocket $50 million if Time Warner Cable is sold and he is replaced while he is CEO, Reuters has reported

Time Warner Cable is based in New York City. It has faced steep cable-TV subscriber losses in the last year and has proposed a three-year turnaround of its operations. As part of this turnaround, it proposed investing in product enhancements, such as faster Internet speeds and a cloud-based channel guide, similar to Comcast's operating philosophy.

Analysts say Time Warner Cable systems would need substantial investment in network upgrades to make them competitive, particularly in New York and Los Angeles, where the company competes with DirecTV or Verizon Communications Inc.

Neil Smit, the head of Comcast's cable division, is expected to head the combined cable operations of the two companies.

If Comcast acquired Time Warner Cable, it would control most of the cable-TV market between Boston and Washington, and many of the nation's urban TV markets.

In 2011, the Federal Communications Commission and the Justice Department agreed to allow Comcast, the nation's largest cable-TV operator, to acquire the news and entertainment conglomerate NBCUniversal, with conditions.

bfernandez@phillynews.com

215-854-5897 @bobfernandez1

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