While Charter Communications and Liberty Media’s John Malone are reportedly lining up funding for a bid to buy Time Warner Cable, Comcast is checking into the possible regulatory hurdles it could face should it choose to purse the nation’s second-largest cable operator.
Citing unnamed sources, CNBC reported that Comcast was asking for guidance on anti-trust and other potentia telecommunications issues that would be associated with a bid for Time Warner Cable. In a “white knight” scenario, CNBC’s sources said that Time Warner Cable would prefer Comcast’s offer over one from Charter Communications and Liberty Media, the latter of which owns a 27 percent stake in Charter.
Also on the rumor mill front, The Wall Street Journal reported yesterday that Charter Communications was in the process of locking down funding in order to make an offer on Time Warner Cable. Charter has held discussions with Bank of America, Barclays and Deutsche Bank AG about a multi-billion dollar debt package to fund the offer for Time Warner Cable, according to The Wall Street Journal. Another possible avenue to fund a bid could include “sovereign wealth funds and wealthy individuals.”
For its part, Time Warner Cable executives, including outgoing CEO and chairman Glenn Britt, have said any possible sale of Time Warner Cable would have to make sense for its shareholders. During Time Warner Cable’s third-quarter earnings call, Britt said he wasn’t opposed to consolidation in the cable industry, but cited Time Inc.’s 1990 merger with Warner Communications and the AOL/Time Warner Cable merger in 2000 as deals that favored one side of shareholders over the other.
Craig Moffett, founder and senior analyst at MoffettNathanson, wrote in his blog that the Federal Communications Commission would pose the biggest speed bump in a deal between Comcast and Time Warner Cable.
“The fact that there is no longer a statutory cap on cable concentration is only half the regulatory battle, however,” Moffett wrote. “A merger the size of TWC and Comcast would have to clear a ‘public interest’ test at the FCC, and that might pose a very high hurdle indeed. A combined Comcast/TWC would account for 33 percent of the pay TV subscribers in the U.S., and fully 60 percent of the country’s cable subscribers.
“A company of that size would arguably have de facto control of what content could and couldn’t exist in the U.S. (a programmer that failed to get a distribution deal with Comcast arguably wouldn’t be economically viable). Would the new FCC allow a deal like that to happen? And what of the fact that a newly combined Comcast/TWC would control 36 percent of all broadband subscriptions in the U.S.? Would the new FCC decide that concentration of that scale is in the public interest?”
Moffett also mentioned that privately-held Cox Communications could also make a play for Time Warner Cable.
“A friendly deal with Cox would potentially provide a path to significant synergies and importantly, much less leverage,” he wrote. “As we noted in our Sept. 12 report, the geographic fit is probably better than that with Charter, and the leverage would be far, far lower. The Cox family would be able to assume immediate de facto control, and would potentially have a path to majority ownership. What we don’t know, of course, is whether the Cox family is interested.
“What is clear, however, is that consolidation now really is afoot. And that Time Warner Cable is the marquee asset.”
A cable-industry insider wrote in an e-mail to CED this morning that he thought it would make more sense if Charter and Malone swooped up Time Warner Cable, along with Cox and Cablevision. If the above happened, Malone’s return to the North American cable operator would eclipse what the Roberts family has done with Comcast.
“Now, having said all that, yes, Comcast and TWC have chatted up a possible merger of assets on occasion, but nothing serious as far as I know,” the insider wrote. “They also got cozy when they split up the assets of Adelphia.
“Malone has vowed to get back into North American cable. He has to make acquisitions through and beyond Charter to do that. If he comes back big to North American cable, he will not settle on being No. 2, as he has always been No. 1. To do that he needs Charter, Cox, Cablevision and TWC, all of which is doable at this point. But if Comcast were to take out TWC, that plan is no longer possible and no one could eclipse the Roberts. That’s why I think there is more to this than the cozy rumor.”