An enlarged stable of Comcast-owned sports networks, with one owning the rights to Los Angeles Lakers games.
Panic and anger in Washington, where regulators such as the Federal Communications Commission, politicians of every stripe, consumer advocates, and free-marketers will wallow in a mud-wrestle that should be entertaining and consequential.
Comcast executive David L. Cohen said that "there will be some fear that the sky is falling" and asked that people "get past some of the hysteria." Even after the merger and Comcast's divesting itself of three million cable-TV subscribers, as it proposed Thursday, the combined entity would control only about 30 percent of the nation's pay-TV market, he said. "We think we have a great story," Cohen said. "I look forward to making it."
John Bergmayer, staff attorney for the nonprofit Public Knowledge, was having none of it. "An enlarged Comcast," he said, "would be the bully in the schoolyard" when dealing with content creators, Internet companies, and other network operators, and thus the deal has to be stopped.
The deal, formally disclosed in a 6:30 a.m. news release and followed by a briefing to investors by Comcast chief executive Brian Roberts and Time Warner Cable chief executive Robert Marcus, ended months of speculation over the fate of Time Warner Cable. Smaller rival Charter Communications Inc. had said for months that it should merge with Time Warner Cable and on Tuesday offered an independent slate of directors for Time Warner Cable's board. Charter's most recent offer, $132.50 a share, had been rejected by Time Warner Cable as "lowball."
Behind the scenes, Time Warner Cable viewed Comcast as a white knight and a more compatible partner. The companies negotiated the deal and the Comcast board voted on it Wednesday night, with company founder Ralph Roberts listening to the meeting via phone. The documents were signed at 1:30 a.m.
Time Warner Cable shareholders will swap their stock for Comcast stock at a ratio of 2.875 Comcast shares for each Time Warner Cable share. The deal valued each Time Warner Cable share at $158.82, close to the $160 a share that Marcus had said he would consider selling the company for. Once the friendly stock swap is completed, Time Warner Cable shareholders will own 23 percent of Comcast's equity.
Comcast shares reacted badly to the news of the deal, shedding 4 percent, or $2.28, to close at $52.97 because of investor concern over the undertaking. Time Warner Cable shares soared 7 percent, or $9.50, to $144.81. Craig Moffett, one of the nation's leading telecommunications analysts, said the "big winner is Time Warner Cable. They get an extra $26 in value per share vs. Charter's most recent offer; they get a friendly rather than a hostile deal."
Comcast and Time Warner Cable said they expected to realize $1.5 billion in cost savings by merging operations, which would likely include employee cutbacks and savings in duplicative services. Executives declined to say how those savings would be achieved, though Comcast cable division head Neil Smit will lead the combined entity. Realizing that the stock swap will dilute Comcast's existing equity, the company said it would spend an additional $10 billion on share repurchases once the deal is completed.
After months of public criticism from Charter, Marcus said during the call with Wall Street analysts that "it's never easy to make a decision to cede control of a company," but that the deal with Comcast "seems very natural to me."
Brian Roberts said he had a "great appreciation" for Marcus and "we are indeed very excited."
He said the deal would create a world-class company and be good for Comcast shareholders and Time Warner Cable customers.
Brian Roberts added later, "We don't think it's different than lots of other cable transactions," noting that the Comcast/Time Warner Cable deal would not eliminate any cable-TV or Internet competitors in any TV market, because neither Comcast nor Time Warner Cable operates "in the same zip code."
A merger with Time Warner Cable would expand Comcast's reach into 19 of the top-20 TV markets - the exception is Phoenix - and create what Roberts called a "near-national platform" for its business. Cable executives have looked with some concern at national online video streaming services such as Netflix and think they have to match those services in scale.
Roberts and other Comcast executives say Time Warner Cable subscribers will benefit through higher quality TV services and faster Internet speeds. Comcast will have a big job fixing Time Warner Cable, which has suffered steep cable-TV subscriber losses in the last year.
Time Warner Cable executives proposed a three-year turnaround of its operations in late January and will be trying to hit those targets as federal regulators review the deal during the next year.
The financial benefits of the $1.5 billion in cost savings are not expected to flow to Time Warner Cable consumers in the form of lower bills. Some Time Warner Cable subscribers, in fact, could see higher bills as Comcast seeks to convert them to triple-play customers and improve Time Warner Cable's service.
A veteran of Washington regulatory battles over the last dozen years with its acquisitions of AT&T Inc.'s broadband business, the Adelphia cable properties and NBCUniversal, Comcast seemed like a well-oiled machine Thursday as it lobbied Washington and the public on the potential benefits of the deal.
Even before negotiating with regulators, Comcast agreed to divest the three million Time Warner Cable TV subscribers to conform with what many view as a perceived subscriber threshold for one pay-TV company.
Roberts and Cohen noted that they did not have to divest the subscribers, because courts have ruled on two occasions that there was no formal TV subscriber cap. Cohen said provisions that Comcast agreed to in the NBCUniversal merger would now be extended over the Time Warner Cable systems, which include a discounted Internet service for poor families with children in public schools called Internet Essentials.
For Charter, the day must have seemed bitter. John Malone, the cable pioneer who has publicly called for cable industry consolidation and a merger with Time Warner Cable in particular, came up empty. He and Charter did not seem willing to top Comcast's offer.
"Charter has always maintained that our greatest opportunity to create value for our shareholders is executing our current business plan," the company said in a statement, and "will continue to be disciplined in this and any other [mergers and acquisitions] activity we pursue."