A $45.2 billion cable bill

February 13, 2014

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Comcast, the largest US cable company, wants to be even bigger, and it has agreed to buy Time Warner Cable for $45.2 billion in stock. Together, after planned divestitures, the combined company would have 30 million subscribers, or a little less than 30% of the US cable market.

Zach Seward summarizes the rationale for the acquisition in six charts and this sentence: “The pay TV industry is in flux as Americans drop their cable TV subscriptions but pay the same companies for internet service, and since Comcast and TWC control different regions, why not add to the industry’s history of consolidation?”

It wouldn’t be M&A without real or imagined synergies. Breakingviews’ Jeffrey Goldfarb says the deal will save the combined company $1.5 billion in costs. “Taxed and capitalized, those would be worth about $10 billion. That more than covers the 18% premium to Time Warner Cable’s most recent closing price”.

The conventional wisdom is that the deal won’t be stopped on antitrust grounds. But Kevin Roose runs the acquisition through the Herfindahl-Hirschman Index, which measures industry concentration, and concludes that the deal should be stopped. Roose calculates that the acquisition moves the cable industry from “moderately concentrated” to close to “highly concentrated”. The precise amount of the increase, Roose says, raises concerns under the Justice Department’s guidelines. The deal is also subject to Federal Communications Commission approval, which has different standards than the DOJ.

Jordan Weissmann points out that the deal may be a fit simply because Comcast and TIme Warner cable don’t compete in the same markets. Matthew Klein crunches the numbers and believes Comcast-TWC will be able to invest more money in infrastructure and deliver better cable and faster internet, which would be a good, if not ideal, outcome for customers of both companies.

MG Siegler thinks the transaction is just more of the status quo:

The strangest thing is that this deal isn’t actually anti-competitive — because there was never any competition to begin with. Time Warner Cable doesn’t operate in areas where Comcast operates. So, if this acquisition goes through, consumers will continue to have no choice in their cable operator.

Cable TV is still a big, profitable business, but as Daniel Gross writes, it’s losing customers to the internet. Om Malik writes that the deal is “all about broadband”. Not only will Comcast be the largest broadband provider in the US, it will be perhaps the largest outside China, and control “about half of what is called triple-play services — video, voice and internet — in the US”. That, says Andrew Leonard, is “internet disaster waiting to happen”. — Ben Walsh

On to today’s links:

Billionaire Whimsy
The politics of our pension system — and a billionaire’s crusade against it – Felix Salmon

America’s disappearing middle-skill jobs and wages – Shane Ferro

Bitcoin mining “is becoming increasingly formalised, structured, and dare we say, corporate” – The Kernel

There is no such thing as the banking profession – John Gapper

Financial Innovations
There’s a growing market for catastrophe bonds – Georgia Levenson Keohane

Big Ideas
How a $4 minimum wage (plus a host of other benefits) could get Americans back to work – Michael Strain

Strange Bloomberg Headlines
“Sheep-Shearing Wells Fargo Banker Bridges US Income Gap” – Kasia Klimasinska

The puzzling relationship between population growth and stock market returns – The Economist

“The story of capital only has one ending: everyone eventually goes bankrupt” – Karl Smith

New Normal
Two ideas to replace the outdated notion of the dignity of work – Ryan Avent

Retail sales were below expectations in January – Bill McBride

Are we in a bourbon bubble? – Fortune

Right On
Why dressing down might get you ahead – Phys.org

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