By Shalini Ramachandran
Comcast Corp. on Friday terminated plans to acquire Time Warner
Cable Inc., as increasing pressure from regulators prompted the end
of the $45.2 billion deal.
"Today, we move on. Of course, we would have liked to bring our
great products to new cities, but we structured this deal so that
if the government didn't agree, we could walk away," Comcast Chief
Executive Brian Roberts said in a news release Friday.
Time Warner Cable Chief Executive Robert D. Marcus said in a
separate release that his company remains strong. "Throughout this
process, we've been laser-focused on executing our operating plan
and investing in our plant, products and people," Mr. Marcus
said.
Mr. Marcus added in an interview that Time Warner Cable could be
a buyer or seller in any future deals and that the Comcast deal
fell apart in the past couple days because of regulatory
pushback.
"Suffice it to say that over the last couple of days it became
clear that this deal was not going to be approved by the
regulators," Mr. Marcus said.
Regulators applauded the deal's demise. Attorney General Eric
Holder said the decision was "the best outcome for American
consumers," and Federal Communications Commission Chairman Tom
Wheeler called it "in the best interests of consumers."
Mr. Wheeler added that the deal would have created a company
with the most broadband and video subscribers in the nation, along
with the ownership of significant programming interests.
"The proposed merger would have posed an unacceptable risk to
competition and innovation, including to the ability of online
video providers to reach and serve consumers," Mr. Wheeler
said.
The Justice Department, meanwhile, said it had significant
concerns that the merger would make Comcast "an unavoidable
gatekeeper for Internet-based services that rely on a broadband
connection to reach consumers."
Shares of Comcast rose 0.7% Friday to $59.64, while Time Warner
Cable shares added about 4.4% to $155.26 following reports that
Charter Communications Inc. is exploring a possible bid.
The transaction's demise is a stunning turnaround for one of the
largest proposed media mergers in years. When it was announced in
February 2014, many on Wall Street believed the deal had a strong
shot at being approved, albeit with concessions to regulators.
The Comcast-Time Warner Cable deal had promised to reshape the
media landscape--forcing TV channel-owners and other pay-TV
operators to contemplate their own mergers. As a result of the deal
falling apart, companies across the industry will have to reassess
their calculations.
The deal's end will raise the prospect of another suitor going
after Time Warner Cable. Charter Communications, which had pursued
Time Warner Cable before it was snapped up by Comcast, remains
interested in the company, people familiar with the situation said.
Charter has been in contact with banks about a debt package in
recent weeks, one of the people said.
Regulators worried about the power Comcast would amass through
the deal, with roughly 30% of the U.S. pay-TV market and 57% of the
broadband market, which the FCC now defines as speeds of 25
megabits per second and higher. The agencies' biggest concerns came
down to how they could protect the nascent streaming TV industry
against the broadband colossus the deal would create, people
familiar with the meetings between Comcast and the regulators
said.
The Justice Department stepped up its own review in recent
weeks, asking media companies that opposed the deal for examples of
how Comcast may have abused its market power. The government also
was skeptical of whether some of the restrictions it put on Comcast
while approving its acquisition of NBCSHYUniversal had worked as
intended, people familiar with the matter have said.
The Comcast-TWC deal had sparked worries in all corners of the
media and Internet industry, with powerful opponents like Netflix
Inc., Discovery Communications Inc. and Dish Network Corp. banding
together to lobby against it. Major media companies including Time
Warner Inc., 21st Century Fox Inc. and Walt Disney Co. also had
privately made their serious concerns known to regulators, people
familiar with those companies' thinking said. (Until mid-2013, 21st
Century Fox and News Corp., owner of The Wall Street Journal, were
part of the same company.)
"I don't know one content group that isn't happy today," a
senior media industry veteran said. The deal also had major
opposition from consumer and public interest groups who said it
would hurt competition.
Among the companies' concerns were that Comcast could squeeze
them on prices to carry TV channels or to connect broadband traffic
into its networks. Some also worried about the influence Comcast
would have over the variety of streaming TV services and apps that
consumers are adopting in greater numbers.
The breakup scrambles two deals Charter had in the works.
Comcast had a deal with Charter to sell or spin off about 4 million
subscribers that Comcast and Time Warner Cable planned to divest in
their combination. Plus, Charter had agreed just last month to buy
cable operator Bright House Networks LLC for $10 billion. That
transaction was contingent on the Comcast-Time Warner Cable deal
closing.
With the bid for Time Warner Cable over, Comcast could be in a
position to do another major deal to seek out further growth. It
could go hunting overseas for cable operators or TV channel-owners,
as some of its peers in the media industry have done, or make a
push into the wireless business. Comcast has in the past several
years looked at various international assets but hasn't been
convinced to pursue any target, a person familiar with the matter
said.
Cable industry insiders still expect cable mergers to occur
between the smaller players: Time Warner Cable, Charter,
Cablevision Systems Corp., Bright House and Cox Communications.
"By this time next year, there will be some combination of some
of those companies," one top cable executive said.
Time Warner Cable believes its assets are more valuable today
than they were a year ago thanks to better operating by management,
a person familiar with the company's thinking said. With its strong
balance sheet, TWC could be an acquirer in its own right should the
deal fall apart, one person said. Time Warner Cable has a roughly
$42 billion market capitalization
Both Comcast and Time Warner Cable are dealing now with a TV
landscape that looks much different than it did just 14 months ago
when the deal was announced. Cord-cutting--the trend of consumers
who are fed up with cable bills dropping their pay-TV
connections--is on the rise, threatening one pillar of the cable
business.
But increasingly, with the television market stagnating,
companies like Comcast and Time Warner Cable will be relying on
their units that sell broadband access to power growth.
Comcast this week sought to make last ditch efforts to save the
deal. On Monday, Mr. Roberts spoke to Mr. Wheeler. On Wednesday and
Thursday, Comcast officials met with FCC staff and were told in no
uncertain terms that no matter what the company offered in terms of
concessions, the deal was headed for trouble, one person close to
the companies said. "They wanted to kill it."
On Wednesday, The Wall Street Journal first reported that FCC
staff had that day recommended that the agency designate the merger
for a "hearing, " a procedural move that would spark a long,
potentially messy legal battle, signaling the deal was in serious
peril. The staff's recommendation was that approving the deal
wouldn't be in the public interest, a sign that Mr. Wheeler was
leaning against the deal, people close to the agency's
deliberations said.
Though Comcast could have fought to preserve the deal, the
drawn-out process may not have been worth it, which is why such a
hearing is known by regulatory experts as a deal killer. Agency
staffers said a hearing could take up to two years.
George Stahl and Dana Mattioli contributed to this article.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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