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Comcast acquisition deal for Time Warner primed to transform the cable box

Consumer-advocate groups mobilize against merger

- The Washington Times - Thursday, February 13, 2014

Comcast Corp.'s blockbuster $45.2 billion deal to acquire top rival Time Warner Cable will further transform the cable landscape, creating the first national cable network and presenting new challenges for rivals, regulators and viewers from Los Angeles to New York City.

The Comcast offer of $158.82 per share for Time Warner would combine the nation's No. 1 and No. 2 cable systems and upend a hostile takeover attempt by Charter Communications, a smaller rival backed by cable mogul John Malone, which offered Time Warner $132.50 per share.

Comcast, with 21.7 million subscribers, is seeking to consolidate its power by buying its closest cable rival, with 11.6 million subscribers. The deal adds the prized Manhattan and Los Angeles markets to the Comcast empire now concentrated in the mid-Atlantic region.

If shareholders and regulators approve the deal, the combined cable giant would tower over its closest competitor, DirecTV, which has about 20 million video customers. Although the company would control 30 percent of the U.S. market, Comcast CEO Brian Roberts Thursday rejected the idea that the merger would hurt competition or give his company too much power.

"We do not operate in any of the same ZIP codes," he told security analysts Thursday in a conference call. "We believe this transaction is approvable. It is pro-consumer, pro-competitive and strongly in the public interest."

But consumer advocates were mobilizing against the deal, which must be cleared by the Justice Department and the Federal Communications Commission. Craig Aaron, president of the media advocacy group Free Press, noted that the deal would give Comcast control of a third of the U.S. pay-TV market and more than half of the market for bundled video-voice-Internet services.

"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," Mr. Aaron said.

News of the merger sent Time Warner's stock up $9.50 — more than 7 percent — to 44.81. Comcast's stock was down $2.28, or 4.12 percent, to $52.97.

If successful, the deal will mark the second time in a little more than a year that Comcast has helped reshape the U.S. media landscape. Last year, it acquired NBC Universal for $17 billion.

Mr. Roberts, who was credited for stealthily snatching Time Warner away from Charter and Mr. Malone, has been an outspoken advocate for consolidation in the cable industry. He said the deal will create a "world-class company" with the capability to grow, while generating $1.5 billion in operating efficiencies.

"It looks like Brian Roberts is getting the last laugh on John Malone and Charter. The lion fails to get his prey," said Richard Greenfield, an analyst with the investment firm BTIG.

Comcast said it will divest 3 million subscribers to avert potential problems with antitrust regulators at the Department of Justice and the FCC.

Federal regulators are likely to scrutinize the deal despite assurances from Mr. Roberts and Time Warner chief executive Robert D. Marcus that they believe it will be approved.

The move is a big defeat for Mr. Malone's Liberty Media, which acquired a 27 percent stake in Charter Communications in the hopes of turning it into a "horizontal acquisition machine" to consolidate the cable industry and fight higher programming fees.

Mr. Malone has said the cable industry will have to scramble to fend off formidable competition from Netflix, Apple and Google, global megacorporations that are creating their own broadcast content and providing entertainment through online venues that threaten to render obsolete cable's live-TV domain.

Charter, which has a large debt load, was unable or unwilling to boost its offer to Time Warner and played into Comcast's hands. In its aggressive pursuit of Time Warner, Charter nominated a potential slate of directors for the cable company's board this week in anticipation of a takeover.

The defeated suitor did not comment directly on the Comcast coup. In a statement Thursday, it said, "Charter has always maintained that our greatest opportunity to create value for our shareholders is by executing our current business plan, and we will continue to be disciplined in this and any other [merger and acquisition] activity we pursue."

Although Mr. Roberts may steal Mr. Malone's claim to be "King of Cable," some analysts doubted that the merger would blunt the threats to the cable industry's basic business model from Netflix and others.

"Consolidation of distribution doesn't help the balance of power between content and distribution," said MoffettNathanson analyst Michael Nathanson.

But Mr. Nathanson's partner, Craig Moffett, noted the obvious boon for Comcast as it acquires the lucrative New York City market, the "crown jewel" of Time Warner's empire.

"Only Comcast is positioned to think generationally about cable's future. And New York City, the system we have always called TWC's 'Boardwalk,' was the missing piece of the puzzle," he said.

Regulatory approval of the deal is not seen as a slam-dunk, despite Mr. Roberts' confidence. The Obama administration has not been shy about challenging deals on antitrust grounds, forcing major changes in deals in the beer and the airline industries before giving its approval. The deal is also likely to be the subject of hearings on Capitol Hill.

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