What Comcast Would Divest for Time Warner Deal

According to a report in the Financial Times, the two companies are currently talking to Charter Communications Inc. (NASDAQ: CHTR) about selling some of Comcast-Time Warner’s assets to Charter for as much as $20 billion. The FT claims among the options being discussed are a sale of subscribers to Charter or a deal where Comcast-Time Warner set up a spin-off and sell Charter a significant minority position in the new company. Some combination of the two is also being considered.

Now why Charter would want to give aid and comfort to Comcast is a reasonable question. After all, Charter had its own offer on the table for Time Warner and no expectation that Comcast would show up with a higher bid. Charter, backed by cable veteran John Malone, was clearly surprised by Comcast. Charter would very probably want at least a half-pound of flesh in order to help Comcast get regulators to go along with the merger that will combine the two largest U.S. cable operators into a single behemoth.

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Comcast has said it would sell off some 3 million subscribers if the merger is approved. It has valued those subscribers at a total of $17 billion. The deal was originally valued at $45.2 billion, but Comcast’s share price has fallen 11.2% since the deal was announced. So, the deal is now worth about $40.2 billion, based on Comcast’s Thursday’s close of $49.10. Because Time Warner has about 12 million cable subscribers, these particular subscribers must be gold-plated. Adding 3 million subscribers to Charter’s total of around 4.5 million still leaves the company a distant second to the new giant which will have nearly 30 million cable subscribers, about a third of the total U.S. market.

And the fight over cable subscribers is not even the main event. Comcast-Time Warner will control about 40% of all U.S. broadband subscribers and that’s where the growth is. Cable subscriber numbers are falling in part because of the rise of video streaming. Giving up 3 million subscribers it is likely to lose anyway is not much of a price for Comcast-Time Warner to pay.

Charter should also insist on a significant portion of the combined company’s broadband subscribers. Regulators should also reject any scenario that includes a minority position for Charter in a spin-off company from Comcast-Time Warner. That divvies up the profits, but does nothing to diversify industry ownership.

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