Comcast to buy Time Warner Cable for $45 billion

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LOS ANGELES (AP) — Comcast Corp. has agreed to buy Time
Warner Cable Inc. for $45.2 billion in stock, or $158.82 per share, two
people familiar with the matter said late Wednesday.
The deal will
combine the nation’s top two cable TV companies and make Comcast, which
also owns NBCUniversal, a dominant force in both creating and
delivering entertainment to U.S. homes.
The deal was approved by
the boards of both companies and, pending regulatory approval, is
expected to close by the end of the year, the people said.
The
people spoke on condition of anonymity because the deal had not been
announced formally. An announcement is set for Thursday morning, they
said.
The price is about 17 percent above Time Warner Cable
shares’ Wednesday closing price of $135.31 and trumps a proposal by
Charter Communications Inc. to buy Time Warner for about $132.50 per
share, or $38 billion in cash and stock.
Time Warner Cable
shareholders will receive 2.57 Comcast shares for every Time Warner
Cable share they own. Once the deal is final, they will end up owning
about 23 percent of the combined company, one of the people said.
Charter
had pursued Time Warner Cable for months but Time Warner Cable CEO Rob
Marcus had consistently rejected what he called a lowball offer, saying
he’d cut a deal for $160 per share in cash and stock.
For a time,
Comcast stayed in the background, waiting to purchase any chunk of
subscribers that a combined Charter-Time Warner Cable would sell off.
Charter had planned to finance its bid with $25 billion in new debt. As
part of a plan to pay off the debt quickly, the company considered
selling off some of its territories after a deal had closed. Time Warner
Cable’s Marcus had also balked at the huge debt burden the Charter
takeover represented.
Instead, Comcast now plans to divest 3
million pay TV subscribers after the deal closes. With 22 million of its
own pay TV customers and Time Warner Cable’s 11.2 million, the combined
entity will end up with about 30 million subscribers when the deal is
complete, a level believed not to trigger the concern of antitrust
authorities. A formal cap was dissolved years ago by regulators, but
divesting subscribers could help the deal get approved more quickly.
Comcast
is taking the position that because Comcast and Time Warner Cable don’t
serve overlapping markets, their combination won’t reduce competition
for consumers. Comcast operates mainly in the northeast including its
home base of Philadelphia and places such as Boston, Washington and
Chicago. Time Warner Cable has strongholds around its headquarters in
New York as well as Los Angeles, Dallas and Milwaukee.
In many of
those areas, the combined Comcast/Time Warner Cable will face
competition from rivals AT&T and Verizon, which provide both pay TV
services and Internet hookups. Both AT&T and Verizon are growing
quickly. They ended 2013 with 5.5 million and 5.3 million pay TV
subscribers, respectively.
Comcast and Time Warner Cable are
expected to save $1.5 billion in annual costs over three years, with
half of that realized in the first year, one of the people said.
Comcast
also plans to add an additional $10 billion in share buybacks at the
close of the deal, on top of a recent plan to boost its share buyback
authority to $7.5 billion from $1 billion, the person said.
Conceding
that it had lost the takeover battle, Charter issued a statement
Wednesday saying, "Charter has always maintained that our greatest
opportunity to create value for shareholders is by executing our current
business plan, and that we will continue to be disciplined in this and
any other (merger and acquisition) activity we pursue."
Even
before the deal had been formally announced, it was being denounced.
Public Knowledge, a Washington-based consumer rights group, said in a
statement Wednesday that regulators must stop the deal, because it would
give Comcast "unprecedented gatekeeper power in several important
markets."
"An enlarged Comcast would be the bully in the schoolyard," it said.
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