Proposed Deal Would Combine No. 1 and No. 2 Cable Operators
Brian Roberts, chairman and chief executive officer of Comcast Corp. speaks during a news conference on June 11, 2013. Bloomberg News
Comcast Corp. CMCSA +0.44% has agreed to buy Time Warner Cable TWC +0.30% for $45 billion in stock, in a deal that would combine the nation’s two biggest cable operators, according to people familiar with the situation.
The boards of both companies have approved the transaction, which will be announced Thursday morning, one of the people said.
With the proposed deal, Comcast almost certainly ends an eight-month takeover battle for TWC waged by fourth-largest cable operator Charter Communications Inc. CHTR -0.24% and its biggest shareholder, Liberty Media Corp. LMCA +0.87% , whose chairman is cable pioneer John Malone.
By negotiating the deal, Comcast Chief Executive Brian Roberts ensures his dominance of the U.S. cable industry will be maintained. But the transaction would face lengthy regulatory review.
Charter’s pursuit of TWC, which began after Liberty bought a 27% stake in Charter about a year ago, had raised the possibility that Mr. Malone would emerge as a rival to Mr. Roberts. Mr. Malone once led the U.S. cable industry but sold his previous cable firm, Tele-Communications Inc., to AT&T in 1999.
A coaxial cable is displayed in front of a Time Warner Cable helmet in Manhattan Beach, California. Bloomberg
In the deal, Time Warner Cable shareholders will receive $158.82 a share in stock for their shares, about $23 a share above where TWC has been trading. Time Warner Cable shareholders will own about 23% of the combined entity. Charter has made three offers, the most recent of which was valued at $132.50, all of which were rejected by TWC as too low. Time Warner Cable Chief Executive Rob Marcus had said TWC wanted $160 a share.
News of the deal comes just a couple of days after Charter ratcheted up the pressure on TWC by nominating a group of 13 people as candidates for TWC’s board, ahead of this spring’s annual meeting.
In a statement late Wednesday, Charter said it “has always maintained that our greatest opportunity to create value for our shareholders is by executing our current business plan, and that we will continue to be disciplined in this and any other M & A activity we pursue.”
Time Warner Cable had long seen Comcast as a preferred partner. Last year, Time Warner Cable approached Comcast about a deal, hoping to ward off Charter. The two companies had talks off and on. But until a week ago there were signs that Comcast was leaning toward striking a deal with Charter instead.
Comcast and Charter were in talks about a deal where it would endorse Charter’s bid in exchange for an agreement where it would buy some East Coast Time Warner Cable systems from Charter if it were successful in buying TWC.
But last Tuesday Comcast and Time Warner Cable re-initiated talks, when Mr. Roberts reached out to Time Warner Cable’s Mr. Marcus, one of the people said. Comcast was very uncomfortable with the idea of a proxy fight that Charter was gearing up to wage, another of the people said.
Time Warner Cable, in turn, was uncomfortable with the amount of debt Charter would have layered onto the company had it succeeded in buying it, one of the people said. Combined with Comcast, Time Warner Cable would have much more conservative leverage ratios than it would have, had Charter succeeded.
Comcast approached Time Warner Cable last week with an offer to buy the entire company at about $150 a share, a person familiar with the matter said. As the offer was much closer to the $160 a share TWC was looking for, it sparked the renewed talks. Comcast’s Mr. Roberts at times negotiated with top Time Warner Cable brass including Mr. Marcus and Chief Financial Officer Artie Minson on the phone from Sochi, where Mr. Roberts has been visiting for the Winter Olympics.
On Wednesday evening, Time Warner Cable’s board met around 5 p.m. to discuss the deal, around the same time Comcast’s board was meeting. By about 8 p.m., the boards had approved the deal.
The deal faces high regulatory barriers. Comcast not only serves more pay TV customers than any other company in the U.S., nearly 22 million video subscribers, but it also owns the entertainment company NBCUniversal, parent of the NBC broadcast network and several big cable channels as well as Universal film studio. Time Warner Cable serves about 11 million video subscribers. Comcast is prepared to divest three million subscribers, the people said. Those divestitures will keep its ownership of the pay TV market below 30%, the people said.
Comcast hopes to convince regulators that because cable companies don’t compete, their deal should go through.
Any bid for Time Warner Cable would have to be approved by both the Federal Communications Commission and the Department of Justice, which hasn’t been shy about bringing antitrust enforcement actions against would-be mergers that it believes will harm competition. Last year, the department’s antitrust chief, Bill Baer, challenged major mergers in the beer and airline industries, though both cases ultimately settled and the deals were allowed to proceed after the companies made several concessions.
However, recent events may give Comcast a better shot at securing regulatory approval.
Purchasing Time Warner would give Comcast roughly a third of the national cable market, raising concerns over whether the combined company would have too much leverage over content providers in negotiations. However, the deal may benefit from the perception of some regulators that cable is a natural monopoly whose primary competition comes from satellite providers and telephone companies like Verizon and AT&T. The FCC previously tried to impose a 30% horizontal ownership cap on the cable industry, but the D.C. Circuit Court of Appeals threw out that limit in 2009.
Since then the commission approved Comcast’s purchase of NBC Universal, giving it a strong foothold in the content industry and control over one of the four broadcast networks. Comcast agreed to a wide range of conditions as part of that deal, including a promise not to discriminate against third-party content traveling over its networks for seven years. Having recently lost a court challenge to its Open Internet rules, the FCC could force Comcast to agree to extend its net neutrality agreement as part of any review.
—Gautham Nagesh and Brent Kendall contributed to this article.