Comcast Corp., one of the U.S. largest cable companies decided to buy Time Warner Cable Inc. for $45.2 billion in stock, creating a barrier against the opposition of phone and satellite providers.
Investors with Time Warner Cable will receive 2.875 Comcast stock for each of their shares, the companies said in a joint statement today. That values each Time Warner share at $158.82 or 17 percent more than its closing price yesterday. The transaction, is subject to be approved by stockholders and regulators, and is expected to be concluded by years end.
Time Warner Cable shareholders will get about 23 percent of Comcast’s common stock when the deal is complete. The deal doesn’t carry a breakup fee for both sides and will provoke savings of $1.5 billion and increase the cash flow for Comcast. The company also announced they would buy back $10 billion of its shares.
Brian Roberts, Comcast Chief Executive Officer, outbid Charter Communications Inc. and billionaire backer John Malone, who was in talks with Time Warner Cable for months. The two companies are hoping the merger will help the companies to overcome the decline in cable-TV because of phone and satellite companies as well as Internet services like Aereo Inc. and Hulu LLC.
Richard Greenfield, an analyst with BTIG LLC., comments, “This leaves Comcast as the sole king of the cable hill, with John Malone and Charter hitting a brick wall in their hopes of becoming a close No. 2. This is a game changer for Comcast.”
Bill Smead, Chief Investment Officer at Smead Capital Management said, Comcast buying the second largest U.S. cable company, will bring in about 11 million residential subscribers. It also gives Comcast access to the New York City cable market and more bargaining power with content providers. This is definitely a bet on a positive future for high-speed access, cable and other services in an economic recovery. Smeads’ fund owns shares in Comcast.
According to Bloomberg data, the Comcast purchase values Time Warner Cable around $69 billion including net debt.
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