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Comcast-TWC Combo not in the Cards

11:35 AM -- A merger combining Comcast Corp. (Nasdaq: CMCSA, CMCSK) with Time Warner Cable Inc. (NYSE: TWC) would “yield $2.7 billion in annual cost savings and $12 billion in synergies by combining the companies’ 78 million customers," Citigroup analyst Jason Bazinet speculated last week.

He went on to surmise that such a merger would be “the most intelligent transaction they could pursue in an increasingly competitive digital market.”

I disagree with most of what Bazinet has to say here, since he is a Wall Street analyst with a vested interest in pushing for such a deal, even though he is considered a respected forecaster of market trends.

Here are my reasons on why such a deal likely won't happen:


  • There's been a sad history of merger disasters associated with large companies, including the Time Warner/AOL deal, which virtually destroyed Time Warner’s shareholder equity position for years. Comcast COO Steve Burke highlighted the issue at a conference last week, offering this statement: "We don't wake up every day saying, 'How do we get bigger in cable?' But if there is a way to acquire cable systems for what we consider to be a good price, ones that are contiguous or well-managed, we would certainly look at whatever was out there."

    Comcast, therefore, is searching for a way to increase size and footprint, but only if the price, synergies, and shareholder equity projections are vetted thoroughly. That it's looking for a company with a good contiguous fit could suggest that it might not seek out anything too large, likely ruling out an MSO the size of TWC.

  • I am also skeptical of any merger that would put Comcast in a “negative public, shareholder, or government position,” and merging with any company that could:

    1. Run high risks, both in price and as a long-term shareholder equity scenario

    2. Attract undue negative perceptions from a regulatory and public view

    3. Possibly cause thousands of layoffs thanks to expected consolidations

Still, it's difficult to safely predict the next move for Comcast after a court killed a 30 percent ownership cap originally put in place by the Federal Communications Commission (FCC) .

However, Comcast does want the flexibility to grow and to stay ahead of increasing competitor entries within or near its cable markets. Whether that entails acquiring adjacent properties, or merging with the right company, it's difficult to say. One scenario that can be predicted is that they will do it on their own terms.

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News

LeonardGrace 12/5/2012 | 3:56:30 PM
re: Comcast-TWC Combo not in the Cards

Seven,


I think Wireless is a good option for Comcast. It would complete their packages and add a high margin business to the portfolio. Wireless is expected to grow substantially within the next couple of years. So, that was a good thought! I also see Verizon expanding this business in a big way for the near future, and Time Warner just announced a launch in the Southeast.


 


 


 


 

paolo.franzoi 12/5/2012 | 3:56:31 PM
re: Comcast-TWC Combo not in the Cards

I thought about your question over lunch and concluded that outside of individual properties that Comcast probably needs to beef up its portfolio in other ways.  This could be (and I am going to use some outlandish examples of things that would have to be highly scrutinized):


- Short a wireless play so they buy Sprint/Nextel.


- Short a larger business play so they buy Level 3.


- Short a bigger piece of the Internet Content business so they buy Akamai.


I think building a bigger residential footprint is only sensible up to a point and they need to think about the higher margin business services offerings or wireless in a more complete way than Clearwire.


seven


 

Jeff Baumgartner 12/5/2012 | 3:56:32 PM
re: Comcast-TWC Combo not in the Cards

I tend to agree with the notion that the ownership cap removal was a relative "non-event" since it doesn't appear that Comcast is bent on making any moves soon...though it may look to expand further into content. But given the prerequisites Burke pointed out, I wonder if a divvying up of Charter might factor in some day, depending on how the bankruptscy reorg pans out, just as Comcast and TWC ended up buying and sharing pieces of Adelphia. Jeff

LeonardGrace 12/5/2012 | 3:56:32 PM
re: Comcast-TWC Combo not in the Cards

Jeff, I think Charter would be a company Comcast would want to seriously consider in some sort of acquisiton, in whole or part. They are reorganizing debt, coming out of bankrupcy, and could have a good potential upside with the right leadership.


 

LeonardGrace 12/5/2012 | 3:56:35 PM
re: Comcast-TWC Combo not in the Cards

What is your opinion on the best options for Comcast in an acquisiton/merger scenario to increase it's footprint in the face of increasing competition?


 

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