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Comcast CEO seen as ‘kingmaker’ in Time Warner Cable’s future

By Alex Sherman
Bloomberg News

Comcast Corp. Chief Executive Officer Brian Roberts isn’t a part of Charter Communications Inc.’s offer for Time Warner Cable.

But he might still get to decide the outcome.

Philadelphia-based Comcast, the largest U.S. cable operator, is weighing its options to play a role after Charter this week offered to acquire Time Warner Cable for $37.4 billion.

The options include:

• Bidding for all or parts of Time Warner Cable — alone or in partnership with Cox Communications Inc.;

• Joining Charter’s bid, or

• Buying some assets from Charter after a deal.

Roberts’ decision could be pivotal in the contest for Time Warner Cable’s 15 million customers.

That’s because Comcast has $5.7 billion in cash, relatively low debt levels and a reputation for superior technology.

The company is also favored by Time Warner Cable CEO Rob Marcus, according to three people interviewed who asked to remain anonymous.

Marcus is said to prefer a friendly deal with Comcast because the company can offer more cash to shareholders than Charter, saddling the new company with less debt, the people said.

Time Warner Cable is the nation’s second-largest operator of cable, Internet and telephone systems. The New York-based company’s third-largest division is based in Akron and serves the Northeast Ohio and Western Pennsylvania markets.

“Brian Roberts is very much a kingmaker here,” said Todd Mitchell, an analyst at Brean Capital LLC in New York. “Not only can Comcast offer more cash and give the resulting entity less leverage, it has a proven track record as an operator. Comcast could be a better steward for Time Warner Cable’s assets going forward.”

Charter is backed by billionaire investor John Malone’s company called Liberty Media Corp.

Charter said this week it would have to borrow $20.5 billion if it combined with Time Warner Cable. Charter offered a cash and stock deal valued at $132.50 per share to Time Warner Cable’s management, which was rejected. Time Warner Cable shareholders would own 45 percent of the new company under the terms of the proposal.

Time Warner Cable has a market value of about $38 billion.

Comcast ended the third quarter with $5.7 billion in cash and net debt equal to 1.9 times earnings before the financial measures of interest, taxes, depreciation, and amortization (known as EBITDA), according to data compiled by Bloomberg. That compares with Charter’s debt-to-EBITDA ratio of 5.3, the data show.

Comcast said earlier this month it added video subscribers in the fourth quarter, the first time any of the four largest public U.S. cable companies gained customers since 2012. Time Warner Cable said it lost 215,000 TV subscribers in the quarter. Charter hasn’t released its fourth-quarter numbers yet.

Comcast isn’t in a rush to act and will probably allow Charter to raise its bid before making a counterproposal, if it doesn’t partner with Charter, two of the people said. Comcast, which would have preferred to acquire Time Warner Cable two years from now, as it views President Barack Obama’s administration as a tough regulator, might act sooner if Time Warner Cable will otherwise be acquired, the people said.

“If Comcast acquires cable assets, we believe it has the operational track record to drive healthy cost and potentially revenue synergies,” Morgan Stanley analyst Benjamin Swinburne wrote this week in a note to clients.

Charter spoke with Comcast as recently as this week about selling Comcast some assets if Charter’s Time Warner Cable bid is accepted, two people said. If a deal between Charter and Time Warner Cable gets done, Comcast might acquire divested assets after the initial takeover is completed to avoid increased regulatory delays, the people said.

There are no formal restrictions preventing Comcast or Charter from acquiring Time Warner Cable.

A U.S. court vacated a regulatory cap on the size of cable companies in 2009, and antitrust laws might have limited relevance because cable providers typically don’t compete for the same customers.

That makes cable different from the wireless communications industry, where AT&T Inc.’s attempt to acquire Deutsche Telekom AG’s T-Mobile US Inc. failed in 2011 after the Justice Department sued to block it. Still, regulators might want to limit Comcast’s size because of its ownership of NBCUniversal’s broadcast and cable networks.

Another option is that Comcast could help Charter increase the cash component in a joint bid.

Time Warner Cable asked Charter for $100 in cash per share, along with $60 in Charter stock, in a counterproposal to Charter’s offer of about $83 in cash and about $49.50 in stock.

Spokesmen for Charter, Comcast and Time Warner Cable declined to comment.

Malone, whose Liberty Media is Charter’s largest shareholder, is intrigued by Comcast’s technology and Xfinity TV guide interface.

Comcast is interested in acquiring Time Warner Cable’s Los Angeles, New York City and Charlotte, N.C., cable assets, two people said.

The largest U.S. pay-TV provider wants those cities because they adjoin current Comcast territories, making it easier to cut costs, service customers, sell advertising and roll out technology.


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