Comcast, Charter Said to Weigh Time Warner Cable Breakup

Comcast Corp. and Charter Communications Inc., aiming to reshape the cable industry, have discussed a joint bid to buy Time Warner Cable Inc. and divvy up its customers, people with knowledge of the matter said.

Each company’s coverage area could be enhanced by adding parts of Time Warner Cable’s network, said the people, who asked not to be identified because the matter is private. The talks between Comcast and Charter have been preliminary, and a Time Warner Cable breakup is one option amid several under consideration, the people said.

Time Warner Cable, the second-largest U.S. cable company, is emerging as an acquisition target amid renewed attempts to consolidate the industry. Companies are looking to bulk up to get more negotiating leverage with networks such as CBS Corp. and Walt Disney Co.’s ESPN. A joint deal would solve issues Comcast and Charter would face if they were to pursue Time Warner Cable separately, the people said.

Breaking up Time Warner Cable would result in a smaller deal for Comcast than buying it outright, thus lowering regulatory hurdles for the biggest U.S. cable carrier to make an acquisition. Charter wouldn’t need to raise as much money to complete a purchase, making a deal more palatable, the people said.

“Everybody wins, but no one wins big,” Vijay Jayant, an analyst with ISI Group, said. “A joint deal also mitigates the risks.”

Justin Venech, a spokesman for Charter, declined to comment on the joint bid talks, as did John Demming, a Comcast spokesman. Bobby Amirshahi, a spokesman for New York-based Time Warner Cable, declined to comment.

Local Markets

Splitting up Time Warner Cable would let Comcast and Charter add users near markets they already serve, making regional advertising more effective, Jayant said. Charter could take Time Warner Cable’s markets in Los Angeles and North Carolina, while Comcast could absorb its New York and Dallas regions, he said.

Joint purchases have helped cable giants grow larger before. Comcast and Time Warner Cable acquired and broke up Adelphia Communications Corp. in 2006, with Time Warner adding

3.3 million customers and Comcast gaining 1.7 million.

Comcast has also weighed a solo bid for Time Warner Cable, according to two people with knowledge of the situation. Regulatory obstacles wouldn’t necessarily be insurmountable for such a transaction because the companies don’t overlap in many regions, said one of the people. The two companies have held some talks, though the process is in the early stages, the other person said.

Borrowing Funds?

Charter, backed by billionaire John Malone, 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. Without a partner, Charter would be bidding on a much bigger rival: Time Warner Cable has an enterprise value of $61 billion, compared with more than $28 billion for Charter. Comcast’s is $171 billion.

“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.

Mayura Hooper at Deutsche Bank, Kerrie Cohen at Barclays and Bank of America’s John Yiannacopoulos declined to comment.

Shares Soar

Time Warner Cable shares rose 10 percent to $132.92 yesterday in New York, the biggest one-day gain since April

2009. Charter, based in Stamford, Connecticut, surged 6.1 percent to $134.66, and Philadelphia-based Comcast climbed 4.4 percent to $49.52. Comcast and Time Warner Cable had record closing prices.

Time Warner Cable shares have gained 37 percent this year as investors wager that a bidder will 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.

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.

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.