Time Warner Cable to merge with Comcast in $45-bn deal

US cable operator Comcast Corporation yesterday struck a deal to buy Time Warner Cable (TWC) for $45 billion, in a transaction that may invite intense scrutiny from US regulators over the merger of the nation's two largest cable companies.

Under the friendly all-stock deal, Comcast will pay $158.82 per share, a premium of around 7 percent to TWCs' Wednesday closing price of $135.31.

Both companies did not reveal their current debt, but several media reports said that the merged company will have a debt of over $70 billion, or about 2.3 timesthe  2014 EBITDA.

The offer trumps a January $132.50 per share or $37 billion in cash and stock bid (including debt $61 billion) for TWC from Charter Communications Inc. (See: Charter Communications offers $61 bn to buy Time Warner Cable)

Charter's offer was immediately rejected by TWSC's board of directors, who termed it as a "grossly inadequate proposal."

TWC shareholders will receive 2.57 Comcast shares for every TWC share they own. Post closing TWC shareholders will own about 23 per cent of the merged company.

Comcast plans to expand its buyback program by an additional $10 billion at the close of the transaction, which it expects at the end of this year.

It expects to generate $1.5 billion in operating savings over three years, with 50 per cent of that expected in the first year.

Comcast, which is fully aware of the regulatory hurdles, said it plans to divest 3 million pay TV subscribers after the deal closes. Comcast has not revealed from which area it will offload the 3 million subscribers.

With TWC's 11.2 million pay TV customers and 22 million of Comcast, the merged company will have a total subscriber base of around 30 million when the deal is completed, Comcast said.

''The combination of TWC and Comcast creates an exciting opportunity for our company, for our customers, and for our shareholders,'' said Brian Roberts, chairman and CEO of Comcast. ''We believe there are meaningful operational efficiencies and the adjusted purchase multiple is approximately 6.7x Operating Cash Flow. This transaction will be accretive and will yield many synergies and benefits in the years ahead.''

''This combination creates a company that delivers maximum value for our shareholders, enormous opportunities for our employees and a superior experience for our customers,'' said Robert Marcus, chairman and CEO of TWC.

Comcast, the parent company of CNBC and NBC had been quietly considering a deal with TWC for some time, but was reported to have been seeking advice on possible regulatory hurdles if it were to pursue a bid.

The merger of Comcast and TWC would create one giant programming provider covering over 60 per cent of subscribers in the US and account for one-third of all pay-television customers.

Though the US Federal Communications Commission had objected to this level of consolidation in the past, regulators had been stymied by the Court of Appeals for the DC Circuit, which had thrown out a rule prohibiting cable companies from controlling over 30 per cent of the industry.

The court found such a cap to be arbitrary, especially in the context of the rise of satellite television as an alternative to cable.

With more than 15 million customers, TWC offers data, video, and voice services to businesses of all sizes, cell tower backhaul services to wireless carriers and, through its NaviSite subsidiary, enterprise-class hosting, managed application, messaging and cloud services.

TWC owns cable systems in New York City, Southern California, Texas, the Carolinas, Ohio, and Wisconsin.

Under the deal, TWC will combine its products and services with Comcast's, including StartOver, which allows customers to restart a live program in progress to the beginning, and LookBack, which allows customers to watch programs up to three days after they air live, all without a DVR.

TWC also has Wi-Fi, which it will combine eit its over 30,000 hotspots, primarily in Los Angeles and New York City, and its in-home management system, IntelligentHome, with Comcast's offerings.

It posted net income of $2.2 billion in 2012 on revenues of $21.4 billion.

Philadelphia, Pennsylvania-based Comcast is the largest cable operator in the world (and also the largest in the US) by revenue. It is also the third-largest home telephone service provider in the US.

Comcast provides cable television, broadband Internet and telephone service to both residential and commercial customers in 40 states and the District of Columbia.

Comcast's subscribers have access to its cloud-based X1 Entertainment Operating System, plus 50,000 video on demand choices on television, 300,000 plus streaming choices on XfinityTV.com, Xfinity TV mobile apps that offer 35 live streaming channels plus the ability to download to watch offline later, and the newly launched X1 cloud DVR.

It also owns media company NBCUniversal, produces film and television content, and operates national channels NBC and Telemundo. It also operates major film studio Universal Pictures and theme park company Universal Parks & Resorts.

In 2012  it posted net income of $6.2 billion on revenues of $62.2 billion.

The mega-merger, which does not have a break-up fee, has to be approved by both the US Federal Communications Commission and the US Justice Department.