Comcast buys Time Warner Cable for $45 billion

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PHILADELPHIA — Comcast said Thursday it had agreed to buy Time Warner Cable for $45 billion in a deal that would combine the two biggest cable companies in the United States.

If the deal is approved, the combined group will be the country’s dominant provider of television channels and Internet connections, reaching roughly one in three American homes.

Time Warner Cable owners will be offered 2.875 Comcast shares for each share they own, valuing Time Warner Cable at about $158.82 per share.

The two companies expect the merger to take effect by the end of the year, but regulators are likely to take a close look at the potential impact on consumers.

To address those concerns, Comcast said it was prepared to divest about 3 million subscribers. But it would still have about 30 million customers. Comcast Cable CEO Neil Smit will lead the merged company.

The proposed deal ends months of jockeying for control of Time Warner Cable, the second biggest U.S. supplier of cable television, with about 11 million subscribers in cities such as New York and Los Angeles.

Smaller rival Charter wanted to buy Time Warner Cable, indicating last month it was ready to pay about $130 per share.

Time Warner Cable called that price “grossly inadequate” and countered with a suggestion of $160 per share, very close to Comcast’s offer.

Comcast had cast a shadow over the negotiations, and had reportedly held talks with Charter about how to divvy up Time Warner Cable’s territories.

Now, by swallowing Time Warner Cable on its own, Comcast will gain even more leverage over the country’s marketplace for television, broadband Internet and phone services. Comcast has about 23 million television subscribers in markets like Philadelphia, where it is headquartered.

With millions more subscribers, Comcast will add muscle in its negotiations with cable channel owners like The Walt Disney Company and Time Warner, the parent company of this website. (Time Warner Cable was spun off from Time Warner in 2009 and no longer has any connection to the owner of CNN, HBO and Warner Bros.)

Although cable providers in general have poor reputations, Comcast has received some high marks for its next-generation software and set-top boxes.

Time Warner Cable, on the other hand, had what the American Customer Satisfaction Index called an “industry low” score last spring. It has shed television subscribers in recent months for a number of reasons, including a protracted blackout of CBS and Showtime in several million homes. Comcast could theoretically improve Time Warner Cable’s performance by bringing in its own software.

But even before the official announcement of the deal, questions arose about whether Comcast will be allowed to expand its cable footprint so substantially.

Regulators used to enforce a rule that prohibited a single cable company from controlling more than 30% of the market. But Comcast led a challenge to that rule in the mid-2000s, and in 2009 a federal appeals court threw out the 30% cap.

Still, the Justice Department and other federal agencies will surely scrutinize the proposed combination.

Ajit Pai, a Republican commissioner at the Federal Communications Commission, expressed doubt back in December about the possibility. “Precedents like this suggest an outright acquisition by Comcast of Time Warner Cable could face a number of hurdles in the Obama administration,” Pai told The Wall Street Journal.

The two companies are likely to point out that they don’t directly compete — Comcast has its own markets, like Philadelphia and Washington, D.C., and Time Warner Cable has its own, like New York and North Carolina. The lack of overlap may temper antitrust concerns.

Analysts also point out that Comcast is remarkably well connected in Washington. In fact, its chief lobbyist, David Cohen, was a guest at the White House state dinner for the French president on Tuesday night.

Comcast persuaded government agencies to approve its $30 billion bid for NBCUniversal in 2011. At that time it agreed to a number of conditions that were designed to prevent anticompetitive behavior. It could be compelled to do the same in this case.

On Wednesday night, some of the public interest groups that opposed the NBCUniversal deal, like Free Press, signaled immediate opposition to the consolidation involving Time Warner Cable.

“No one woke up this morning wishing their cable company was bigger or had more control over what they could watch or download. But that — along with higher bills — is the reality they’ll face tomorrow unless the Department of Justice and the FCC do their jobs and block this merger,” Free Press said in a statement. “Stopping this kind of deal is exactly why we have antitrust laws.”

It appears unlikely that Charter, the other cable company that had been chasing Time Warner Cable, would stand in the way of Comcast’s bid. In a statement, it said, “Charter has always maintained that our greatest opportunity to create value for our shareholders is by executing our current business plan, and that we will continue to be disciplined in this and any other M&A activity we pursue.”

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