The U.S. Senate Judiciary Committee has deferred the hearing on Comcast Corporation’s (CMCSA - Analyst Report), proposal to acquire Time Warner Cable Inc. (TWC - Analyst Report), the two major cable MSOs (multi-service operator) in the U.S. The hearing scheduled for Apr 2 has been postponed until Apr 9.
In the previous month, confirming a long standing rumor, Comcast reached an agreement to acquire Time Warner Cable for $45.2 billion. Each share of Time Warner Cable will be converted into 2.875 shares of Comcast. After the culmination of the deal, existing Time Warner Cable shareholders will hold about 23% of the merged entity.
Comcast has also decided to divest around 3 million Time Warner Cable video subscribers to maintain its total market share at 30% of the U.S. pay-TV industry.
Both Comcast and Time Warner Cable have nearly 33 million pay-TV (video), 32 million high-speed broadband (Internet) and 16 million telephony (voice) subscribers. The merged entity accounts for nearly one-third of the high-speed broadband market. In 2013, the combined total revenue of these companies stood at approximately $86.8 billion and net profit was approximately $8.8 billion. Comcast is expected to derive a significant $1.5 billion of operating synergies from this merger of which 50% may be realized within the first year after merger.
We believe that 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 - Analyst Report) and DIRECTV . On the other hand, Comcast 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.
Comcast’s total debt at the end of the recently reported quarter stood at $44.6 billion whereas Time Warner Cable had $25 billion of debt. Total debt of both the companies will further expand Comcast’s leverage position.
Both Comcast and Time Warner Cable carry a Zacks Rank #3 (Hold).