Comcast Corporation (CMCSA) has received a green signal from its shareholders for the proposed $45.2 billion merger with Time Warner Cable Inc. (TWC). Notably, Comcast and Time Warner Cable are the largest and second largest cable MSOs (multi-service operator) in the U.S., respectively.
Following the development, Comcast’s shares jumped 2.9%, whereas Time Warner Cable added 3.2% yesterday.
More than 99% of Comcast’s stockholders voted in favor of the deal. According to the deal, Comcast will offer approximately $159 per share of Time Warner Cable, which amounts to a total consideration of around $45.2 billion. Each share of Time Warner Cable will be converted into 2.875 shares of Comcast. Post-completion of the deal, existing Time Warner Cable’s investors will hold about 23% of the merged entity. Comcast said the deal is expected to be sealed in early 2015.
The merger is expected to face tough scrutiny and close monitoring by the regulator, Federal Communications Commission (FCC). Although Comcast and Time Warner Cable’s operations overlap in very few U.S. markets, Comcast may assume near monopolistic power by installing better delivery mechanism, newly launched innovative products and the bundled offerings of its NBC Universal division.
We believe 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). Comcast, on its part, 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.
Both Comcast and Time Warner Cable presently carry a Zacks Rank #3 (Hold).
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