The U.S. Senate Judiciary Committee has deferred the hearing on Comcast Corporation’s (CMCSA), proposal to acquire Time Warner Cable Inc. (TWC), the two major cable MSOs (multi-service operator) in the U.S. The hearing scheduled for Apr 2 has been postponed until Apr 9.
In the previous month, confirming a long standing rumor, Comcast reached an agreement to acquire Time Warner Cable for $45.2 billion. Each share of Time Warner Cable will be converted into 2.875 shares of Comcast. After the culmination of the deal, existing Time Warner Cable shareholders will hold about 23% of the merged entity.
Comcast has also decided to divest around 3 million Time Warner Cable video subscribers to maintain its total market share at 30% of the U.S. pay-TV industry.
Both Comcast and Time Warner Cable have nearly 33 million pay-TV (video), 32 million high-speed broadband (Internet) and 16 million telephony (voice) subscribers. The merged entity accounts for nearly one-third of the high-speed broadband market. In 2013, the combined total revenue of these companies stood at approximately $86.8 billion and net profit was approximately $8.8 billion. Comcast is expected to derive a significant $1.5 billion of operating synergies from this merger of which 50% may be realized within the first year after merger.
We believe that the deal will help Time Warner Cable regain its lost ground and will also give Comcast a competitive edge over pay-TV operators like Dish Network Corp. (DISH) and DIRECTV (DTV). On the other hand, Comcast will benefit from geographical expansion, significant operating cost synergies, which will boost its bottom line and free cash flow, and a unique combination of triple-play (voice, video and data) delivery and high-quality content distribution mechanism.
Comcast’s total debt at the end of the recently reported quarter stood at $44.6 billion whereas Time Warner Cable had $25 billion of debt. Total debt of both the companies will further expand Comcast’s leverage position.
Both Comcast and Time Warner Cable carry a Zacks Rank #3 (Hold).
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