The announcement of the merger between Comcast and Time Warner Cable came on Thursday. Nearly a year after their initial talks, Comcast agreed to buy out Time Warner Cable with a $45.2 billion stock deal. As the two largest cable companies come together as one, they will dominate the industry.
The two companies were in talks over the last year when Time Warner Cable initiated the conversation about a possible partnership. Both companies had also been in talks with Charter, but they did not like the terms Charter was proposing. Comcast was not comfortable with the proxy bidding that Charter demonstrated. They also preferred the all stock deal with TWC over the cash deal that Charted wanted. Plus Charter only offered Time Warner Cable $132.50 per share.
Talks were renewed on Tuesday when Comcast approached Time Warner and offered them $150 per share. Both Comcast and Time Warner Cable held evening board meetings on Wednesday and approved the deal. By holding off on the deal with Charter, TWC was able to get more for their shareholders. The deal with Comcast is at a rate 17 percent higher than what it closed at yesterday.
Comcast is the largest cable company with 22 million video subscribers. Time Warner is the second largest cable company with 11 video subscribers. Comcast expects to acquire eight million subscribers in the deal. Together, they would form a mega company that will dominate the industry and serve over 11 million residential customers.
What would the deal mean for customers? Though it would mean faster broadband service for current TWC customers, it will more than likely mean higher prices. If the merger goes through, customers can expect to see an increase on the cost of cable services. It also means Comcast would control what two-thirds of the market is watching and downloading. The government needs to approve the deal, which is likely to raise antitrust issues. In a similar case where AT&T wanted to buy out T-Mobile, creating a merger for two of the four largest cell phone companies, the government rejected the deal. Furthermore, deals in the airline and beer industries involved lawsuits that led to major concessions.
“In an already uncompetitive market with high prices that keep going up and up, a merger of the two biggest cable companies should be unthinkable,” said Craig Aaron, Free Press President and CEO. He is amongst those who oppose the deal between the cable companies.
Content providers are not in favor of the merger either. A previous dispute with TWC and CBS caused the network to pull its programming from the cable provider. The merger would make it difficult for networks to have any say in it because the company would be too big to go up against. Internet companies, including Google, Netflix and Amazon are opposed to the deal as well.
The merger still needs approval from the Federal Communications Commission and the Justice Department. Comcast was under scrutiny before getting approval for their deal to buy out NBC Universal as well. Regulators need to weigh how the deal could affect competitors. Pending approval, the Comcast and Time Warner Cable deal is expected to be finalized by the end of the year.
By Tracy Rose