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 Comcast brought in the bank to help review options as speculation
about cable industry consolidation increased in the past several
months, one of the people said.
Comcast does not plan to make a pre-emptive bid for No. 2 cable
provider Time Warner Cable, the subject of a months-long pursuit by
much smaller rival Charter Communications Inc, but could jump in if
signs emerge that Charter is getting close to a deal, the people
said.
Comcast, which has a market value of more than $127 billion, might
also decide against doing any deal, they added.
The people asked not to be identified by name because the matter is
not public. Representatives for Comcast and JPMorgan declined to
comment.
Time Warner Cable, which has said it was open to a deal at the right
price, considers Comcast to be the best merger partner because the
larger rival can afford to make an all-cash offer and provides a
better geographic fit, separate people familiar with the matter have
said.
Charter has a market value of about $13 billion, much less than Time
Warner Cable's $37 billion, and would need to raise a large amount
of debt to finance a deal.
A Comcast takeover bid would likely face close scrutiny from
antitrust regulators at the Justice Department and the Federal
Communications Commission because it would create a dominant company
controlling more than one third of the pay TV market.
Comcast currently has 23 million video subscribers while Time Warner
Cable has about 12 million. In comparison, third-ranked Cox
Communications has 4.5 million and No.4 player Charter has 4.2
million.
Newly installed FCC Chairman Tom Wheeler has also spoken out in
favor of competition. A former chief at both the cable industry and
wireless industry trade groups, Wheeler spent his first days in
office taking a hard line against wireless providers and
continuously speaking about promoting competition.
But a large cable merger is still possible because cable operators
generally do not offer services in the same markets and instead
compete with satellite and telcom TV services, industry experts have
said.
CHARTER'S CHALLENGES
Charter, in which cable billionaire John Malone's Liberty Media Corp
owns a 27 percent stake, has its own challenges.
The company offered to buy Time Warner Cable earlier this spring,
but was rebuffed because it did not offer a premium, Reuters
previously reported.
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And any deal has gotten much more expensive since, with takeover
speculation pushing Time Warner Cable' shares above $130 from the
mid $90s in May — when Charter first approached the company.
Charter's pursuit of Time Warner Cable also attracted the interest
of privately held Cox Communications, which is examining its own
options for a deal with the second-largest U.S. cable operator,
people familiar with the matter said.
Any suitor would likely need to bid at least $150 per share to be
considered seriously by Time Warner Cable's board, one person
familiar with the matter said.
A tie-up with Charter raises particular concerns for Time Warner
Cable because any offer from the smaller rival would have a large
stock component and heavily indebt the combined company, people
familiar with the matter have said.
Charter's stock price has increased about 70 percent this year,
which could be viewed as an inflated currency by Time Warner Cable
shareholders.
Depending on the amount of debt it raises, a Charter-Time Warner
Cable combination could push up the merged company's leverage ratio
to five or six times. Time Warner Cable's current leverage is just
over three times while Charter's leverage ratio is 4.9 times.
Steve Soranno, an equity analyst at Calvert Investment Management,
which has $13 billion under management and owns Time Warner Cable
shares, said he is not convinced if he wants to hold shares in a
merged Charter-Time Warner Cable.
One of the reasons the firm likes Time Warner Cable is because the
company has been reducing its debt level and has a stable cash flow
structure, he said.
"In order to accept a deal with Charter, shareholders have to accept
a fundamentally different capital structure with a heck of a lot
more debt. How solid is its growth profile? How solid is the stock
you're getting?" Soranno said.
(Reporting by Soyoung Kim, Nicola Leske
and Liana B. Baker in New York, additional reporting by Nadia
Damouni and Alina Selyukh; Editing by Gerald E. McCormick, Andre Grenon and Bob Burgdorfer)
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