Comcast, Charter Talking Turkey?
Alan Breznick, Cable/Video Practice Leader, Light Reading
Charter Communications may end up with a nice chunk of Time Warner Cable after all.
Charter Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK) are exploring the transfer of at least 3 million cable subscribers from Comcast to Charter if Comcast's pending $45.2 billion purchase of Time Warner Cable Inc. (NYSE: TWC) passes muster, according to several news reports over the holiday weekend. The subscriber selloff could be worth up to $20 billion, cutting the cost of the TWC deal for Comcast while enabling Charter to nearly double in size.
Sources told both the Financial Times and Reuters that the Comcast-Charter talks are serious but still in the early stages. And, not too surprisingly, none of the three MSOs involved are commenting on the news reports right now.
But a deal between Charter and Comcast would make sense for several reasons. First, it would give Charter more of the size and scale it has been feverishly seeking in one fell swoop. It would be very difficult for Charter, which now has 4.2 million basic cable customers, to add another 3 million or more subs through a series of smaller acquisitions. (See What's Next for Charter?)
Moreover, such a sizable deal with Comcast would likely give Charter one or more major metro clusters in the US, something which it dearly lacks now beyond its former St. Louis hometown base. Although it's not known which cable systems Comcast and Charter might be discussing, some possibilities include TWC's systems in Wisconsin, Texas, and the Carolinas, where Charter also has some concentration.
From Comcast's perspective, a deal with Charter could assuage regulatory concerns in Washington, DC and some state capitals about the huge cable monolith that a Comcast-TWC merger would create. While Comcast has pledged to sell cable systems with 3 million subscribers to cap the new company's size at about 30 million video customers, or no more than 30% of the US pay TV market, an actual agreement to do so would undoubtedly generate more trust in Comcast's intentions. (See Comcast-TWC Deal: Playing All the Numbers.)
In addition, a nice little deal on the side with Charter would remove Charter as a potential thorn in the side of the deal. While Comcast is offering far more money for TWC than Charter ever did and TW Cable's board has accepted Comcast's terms, Charter has not yet dropped its own hostile $37.3 billion takeover offer for TWC. So Charter could still make trouble for Comcast's grand plans if it were so inclined.
Besides, why raise the ire of John Malone, Charter's powerful backer, if it can be avoided? After all, what's a mere $20 billion between friends?
— Alan Breznick, Cable/Video Practice Leader, Light Reading