Nov. 22 (Bloomberg) -- Comcast Corp. is weighing a bid for Time Warner Cable Inc., a deal that would unify the largest cable providers in the U.S., according to two people with knowledge of the situation.
Comcast doesn’t see insurmountable regulatory obstacles to the transaction, since the companies don’t overlap in many regions, said one of the people, who asked not to be identified because the matter is private. The two companies have held some talks, though the process is in the early stages, the other person said.
The move would disrupt efforts by Charter Communications Inc., backed by billionaire John Malone, to make its own bid for Time Warner Cable. Charter has been in discussions with banks, including Barclays Plc, Bank of America Corp. and Deutsche Bank AG, to borrow funds for an acquisition, two people familiar with those talks said. The deal would mean acquiring a much bigger rival: Time Warner Cable has an enterprise value of $61 billion, compared with less than $28 billion for Charter.
“Comcast has an advantage through sheer size, and they could make an offer that would be far less debt-laden than one from Charter,” Craig Moffett, founder of research firm MoffettNathanson LLC, said in an interview.
Comcast is the largest U.S. cable company, which makes it a more attractive suitor, one of the people said. With an enterprise value of $168.5 billion, the Philadelphia-based company could bring a bigger cash component to a deal and the combined entity would have more heft in negotiations with the networks. The threat of a Comcast deal also could put pressure on Charter to sweeten any offer it makes for Time Warner Cable, one of the people said.
Bobby Amirshahi, a spokesman for New York-based Time Warner Cable, declined to comment, as did Charter’s Justin Venech and Comcast’s John Demming. Mayura Hooper at Deutsche Bank, Kerrie Cohen at Barclays and Bank of America’s John Yiannacopoulos also declined to comment.
The renewed takeover speculation sent Time Warner Cable shares up the most in four years. CNBC reported on Comcast weighing a Time Warner Cable bid earlier today, while the Wall Street Journal said last night that Charter was in talks with banks to obtain financing. The shares rose as much as 9.9 percent to $132.76, the biggest intraday gain since April 2009.
Time Warner Cable shares had already climbed 24 percent this year through yesterday as investors wagered that a bidder would emerge. Malone, whose holding company acquired a 27 percent stake in Charter in May, has pushed for more consolidation in the cable industry, saying it will help providers cut costs and get better rates from the networks.
Malone said in September that a deal with Time Warner Cable makes sense. The billionaire is letting Greg Maffei, chief executive officer of his holding company Liberty Media Corp., manage any potential transaction process, he said at the time. Malone said he didn’t expect a deal to become hostile.
A tie-up between Comcast and Time Warner Cable would still face tough scrutiny from the Federal Communications Commission, Moffett said. The merged company would have 33.3 million video customers in the U.S. That would account for almost three-quarters of the cable industry, according to the National Cable Television Association.
De Facto Control
“The FCC would be concerned that Comcast would have de facto control over what content would be available on television,” Moffett said. “If a TV programmer couldn’t cut a deal with Comcast, they wouldn’t exist. Comcast becomes a behemoth.”
There are no statutory limits on the percentage of customers a cable company could own. In 2009, the U.S. Court of Appeals eliminated an FCC restriction preventing any U.S. cable provider from owning more than 30 percent of the nation’s total subscribers.
Charter, meanwhile, has been trying to mount a bid for Time Warner Cable that would rely heavily on debt, one of the people said. Both companies already have a heavy debt burden, and the deal may raise concerns for shareholders, Moffett said.
“Take two highly levered entities -- it might not look attractive,” he said.
Time Warner Cable Chief Operating Officer Rob Marcus, who is set to become CEO of the company next year, would prefer to work with Comcast CEO Brian Roberts rather than Malone, another person with direct knowledge of the matter said.
To contact the reporter on this story: Nick Turner in New York at email@example.com