Liberty/Charter to Offer $55 Billion for Time Warner

Charter lobby

Image courtesy of Charter Communications

Liberty/Charter to Offer $55 Billion for
Time Warner
| published May 25, 2015 |

By Thursday Review staff

The ink was barely dry on the paperwork making Comcast’s bid to buy Time Warner null and void when the rumors began circulating that other major players were interested in Time Warner.

Comcast’s massive merger deal collapsed last month when it became apparent that federal regulators had identified too many problems with a marriage so big that it would effectively create a near-monopoly by melding Comcast’s number one broadband footprint with that of number two giant Time Warner. Once completed, the newly-merged mega company would have been the primary provider of internet and cable to more than half of U.S. homes.

Comcast had lobbied hard for the advantages of that mega merger—economies of scale, buying power, leverage with networks, improved technology—but the list of potential problems identified by Congress and a slew of regulators eventually caused the $45.2 billion deal to go dead in the water. The cost of that misfire may be incalculable, but some business analysts say that Comcast spent north of $290 million in its lobbying efforts to push the merger through.

Comcast will move forward and survive, as it always does. And the Philadelphia-based provider of cable, internet and phone will no doubt craft new strategies in its fight to remain relevant in an age when cable subscriptions continue to decline at a measurable—albeit small—rate each year. Comcast’s greatest struggle continues to be remaining the dominant force in content, even as other, increasingly mobile forms of entertainment syphon millions of potential broadband users away each year.

Time Warner, meanwhile, found itself standing alone at that altar. Not to worry: there were plenty of suitors with deep pockets and cash, and the candidate most often discussed as waiting in the wings to rescue the jilted Time Warner has been Charter Cable, and Charter’s biggest patron, John Malone. Malone’s Liberty Media, which owns the lion’s share of Charter stock, has now announced its own friendly bid for Time Warner, offering shareholders $195 per share. This means that the Liberty/Charter offer exceeds Comcast’s 2014 offer by about $10 billion (the new buyout would be worth about $55 billion). Time Warner shareholders will be paid about $100 in cash, and the balance in Charter stock.

Business analysts say that the deal will be official by Tuesday, though the talks have been going on quietly for weeks. Once announced, the deal will possibly—maybe—bring to a conclusion a long and complex struggle between five or six of the largest cable companies in the United States. When the Comcast deal with Time Warner collapsed, it also effectively ended a separate but equal set of negotiations between Charter and Bright House Communications—a deal which was allowed to proceed only if the Comcast merger itself came to fruition.

But when Comcast and Time Warner were forced to walk away from the altar last month, it sent all other merger and acquisition arrangements into the wastebasket and forced a lot of negotiators to start over to meet the requirements of state and federal regulators.

Ironically, this is not the first time Charter has attempted a hostile marriage to Time Warner. Only two years ago merger talks failed when things got nasty between Charter and Time Warner. After an ugly set of exchanges which ended in legal threats and Time Warner telling Charter to just go away, Charter now looks like the rescuer—offering more cash and a better set of circumstances than Comcast’s own generous offer.

This time Charter sweetened the offer substantially, and fought a flanking battle against the French communications giant Altice, which also sought to acquire Time Warner. Instead Altice will buy U.S. cable, phone and internet company Suddenlink Communications for $9 billion from the private equity partners who own the St. Louis headquartered firm.

If the merger goes through as expected, the marriage between Charter and Time Warner would create a behemoth which will closely rival Comcast in numbers, though it will remain number two. Experts suggest that this arrangement will sit better with regulators who feared the merger of Comcast with Time Warner, since this new marriage will in effect create a substantial competitor to Comcast. Comcast has about 27.2 million customers in the U.S., and the newly merged Charter-Time Warner would have roughly 23 million customers.

Though there would be very little overlap between the two companies in most large markets, Comcast may still face competition from other broadband competitors in secondary and tertiary markets from smaller rivals such as WOW! (which acquired Knology in 2012), and Cox.

Charter and Bright House, meanwhile, were able to recraft an entirely new merger offer, a deal which may also be announced this week.

Related Thursday Review articles:

Comcast Time Warner Merger Scrapped; Thursday Review staff; Thursday Review; April 24, 2015.

Comcast: Don’t Worry, Be Happy; R. Alan Clanton; Thursday Review; April 9, 2014.