A three-part transaction agreement between Comcast and Charter Communications announced today is aimed at improving the likelihood that Comcast’s plan to purchase Time Warner Cable will gain regulatory approval. For Charter, which also tried to acquire Time Warner Cable, the transactions would give the company at least some of the subscribers and scale it had hoped to achieve through that acquisition.
The three transactions, which would occur only if Comcast’s plan to acquire Time Warner Cable is completed, include:
- Charter would acquire systems serving former Time Warner Cable customers for an estimated $7.3 billion in cash
- Comcast would trade approximately 1.6 million former Time Warner Cable customers to Charter in exchange for 1.6 million Charter customers
- Comcast would spin off a new entity, to be known as SpinCo comprised of cable systems serving approximately 2.5 million Comcast customers, with Charter acquiring 33% of SpinCo. Charter would provide management services such as procurement, customer care and marketing services for SpinCo and for that would earn a fee equal to 4.25% of SpinCo revenues annually. Comcast would own the other 67% of SpinCo.
When Comcast announced plans to acquire Time Warner Cable several months ago, it agreed to divest some of the combined company so that the merged company would have no more than a 30% market share. On a conference call this morning, Comcast CEO Brian Roberts said the company hopes that by specifying its divestiture plans in advance it will increase the likelihood of the acquisition being approved by regulators.
The companies did not specify what type of services SpinCo customers would receive, but considering that they would include current Comcast customers, it would seem logical that they would receive Comcast services.
On the conference call, Comcast and Charter executives emphasized the idea that the proposed transactions would enhance efficiencies for both companies by yielding each company more contiguous service areas. Charter would end up with a strong presence in the Midwest and Southeast and would be the nation’s second largest cable operator. The combined Comcast-TWC would be the largest.
Despite Comcast’s optimism about merger approval, however, the proposed merger already faces strong opposition from consumer groups and that appears unlikely to change as a result of today’s Comcast – Charter deal news.
Additionally, smaller cable companies have expressed concern about the fact that Comcast already owns content provider NBCUniversal and that acquiring Time Warner Cable would make Comcast even stronger. Small cablecos have been struggling to make a profit with escalating content prices – and competition would be reduced if content costs forced some of those small companies to cease providing video services.