By Shalini Ramachandran and Dana Cimilluca
Comcast Corp. said it agreed to buy Time Warner Cable for $45.2
billion in stock, in a deal that would combine the nation's two
biggest cable operators.
The boards of both companies have approved the transaction,
which was announced Thursday morning.
With the proposed deal, Comcast almost certainly ends an
eight-month takeover battle for TWC waged by fourth-largest cable
operator Charter Communications Inc. and its biggest shareholder,
Liberty Media Corp., whose chairman is cable pioneer John
Malone.
By negotiating the deal, Comcast Chief Executive Brian Roberts
ensures his dominance of the U.S. cable industry will be
maintained. But the transaction would face lengthy regulatory
review.
Charter's pursuit of TWC, which began after Liberty bought a 27%
stake in Charter about a year ago, had raised the possibility that
Mr. Malone would emerge as a rival to Mr. Roberts. Mr. Malone once
led the U.S. cable industry but sold his previous cable firm,
Tele-Communications Inc., to AT&T in 1999.
In the deal, Time Warner Cable shareholders will receive $158.82
a share in stock for their shares, about $23 a share above where
TWC has been trading. Time Warner Cable shareholders will own about
23% of the combined entity. Charter has made three offers, the most
recent of which was valued at $132.50, all of which were rejected
by TWC as too low. Time Warner Cable Chief Executive Rob Marcus had
said TWC wanted $160 a share.
The new company will be led by Comcast President and CEO Neil
Smit.
Comcast also said it is going to expand its buyback program by
an additional $10 billion at the close of the transaction, which is
expected at the end of 2014.
To reduce competitive concerns, Comcast is prepared to divest
systems serving about 3 million managed subscribers and will,
through the acquisition and management of Time Warner Cable
systems, net about 8 million managed subscribers in this
transaction.
News of the deal comes just a couple of days after Charter
ratcheted up the pressure on TWC by nominating a group of 13 people
as candidates for TWC's board, ahead of this spring's annual
meeting.
In a statement late Wednesday, Charter said it "has always
maintained that our greatest opportunity to create value for our
shareholders is by executing our current business plan, and that we
will continue to be disciplined in this and any other M & A
activity we pursue."
Time Warner Cable had long seen Comcast as a preferred partner.
Last year, Time Warner Cable approached Comcast about a deal,
hoping to ward off Charter. The two companies had talks off and on.
But until a week ago there were signs that Comcast was leaning
toward striking a deal with Charter instead.
Comcast and Charter were in talks about a deal where it would
endorse Charter's bid in exchange for an agreement where it would
buy some East Coast Time Warner Cable systems from Charter if it
were successful in buying TWC.
But last Tuesday Comcast and Time Warner Cable re-initiated
talks, when Mr. Roberts reached out to Time Warner Cable's Mr.
Marcus, one of the people said. Comcast was very uncomfortable with
the idea of a proxy fight that Charter was gearing up to wage,
another of the people said.
Time Warner Cable, in turn, was uncomfortable with the amount of
debt Charter would have layered onto the company had it succeeded
in buying it, one of the people said. Combined with Comcast, Time
Warner Cable would have much more conservative leverage ratios than
it would have, had Charter succeeded.
Comcast approached Time Warner Cable last week with an offer to
buy the entire company at about $150 a share, a person familiar
with the matter said. As the offer was much closer to the $160 a
share TWC was looking for, it sparked the renewed talks. Comcast's
Mr. Roberts at times negotiated with top Time Warner Cable brass
including Mr. Marcus and Chief Financial Officer Artie Minson on
the phone from Sochi, where Mr. Roberts has been visiting for the
Winter Olympics.
On Wednesday evening, Time Warner Cable's board met around 5
p.m. to discuss the deal, around the same time Comcast's board was
meeting. By about 8 p.m., the boards had approved the deal.
The deal faces high regulatory barriers. Comcast not only serves
more pay TV customers than any other company in the U.S., nearly 22
million video subscribers, but it also owns the entertainment
company NBCUniversal, parent of the NBC broadcast network and
several big cable channels as well as Universal film studio. Time
Warner Cable serves about 11 million video subscribers. Comcast is
prepared to divest three million subscribers, the people said.
Those divestitures will keep its ownership of the pay TV market
below 30%, the people said.
Comcast hopes to convince regulators that because cable
companies don't compete, their deal should go through.
Any bid for Time Warner Cable would have to be approved by both
the Federal Communications Commission and the Justice Department,
which hasn't been shy about bringing antitrust enforcement actions
against would-be mergers that it believes will harm competition.
Last year, the department's antitrust chief, Bill Baer, challenged
major mergers in the beer and airline industries, though both cases
ultimately settled and the deals were allowed to proceed after the
companies made several concessions.
However, recent events may give Comcast a better shot at
securing regulatory approval.
Purchasing Time Warner would give Comcast roughly a third of the
national cable market, raising concerns over whether the combined
company would have too much leverage over content providers in
negotiations. However, the deal may benefit from the perception of
some regulators that cable is a natural monopoly whose primary
competition comes from satellite providers and telephone companies
like Verizon and AT&T. The FCC previously tried to impose a 30%
horizontal ownership cap on the cable industry, but the D.C.
Circuit Court of Appeals threw out that limit in 2009.
Since then the commission approved Comcast's purchase of
NBCUniversal, giving it a strong foothold in the content industry
and control over one of the four broadcast networks. Comcast agreed
to a wide range of conditions as part of that deal, including a
promise not to discriminate against third-party content traveling
over its networks for seven years. Having recently lost a court
challenge to its Open Internet rules, the FCC could force Comcast
to agree to extend its net neutrality agreement as part of any
review.
Gautham Nagesh and Brent Kendall contributed to this
article.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Dana Cimilluca at dana.cimilluca@wsj.com
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