Comcast, Time Warner Cable nix $45B merger deal

Roger Yu | USA TODAY

Comcast Corp. said Friday that it's ending its $45.2 billion merger agreement with Time Warner Cable, scrapping a giant deal that ran into stiff opposition from consumers and a likely veto from federal regulators.

Comcast is also calling off a related transaction with Charter Communications.

"Today, we move on," Comcast CEO Brian Roberts said. "Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn't agree, we could walk away."

In a statement, Time Warner Cable said the decision was "mutual." The agreement included no breakup fee if the merger wasn't approved or either side abandoned the effort.

"We have always believed that Time Warner Cable is a one-of-a-kind asset," said TWC CEO Robert Marcus, in a statement. "We are strong and getting stronger. Throughout this process, we've been laser focused on executing our operating plan and investing in our plant, products and people to deliver great experiences to our customers."

If the deal had been completed, Comcast planned to move 3.9 million of its TV customers to Charter Communications. Charter also recently agreed to buy Bright House Networks, which has had distribution and negotiating deals with Time Warner Cable for years. Given today's development, the Bright House deal may not proceed given that Time Warner Cable has the right to block it.

In February,2014, Philadelphia-based Comcast agreed to pay $45.2 billion to buy Time Warner Cable, a move that would consolidate the nation's two largest cable companies. The deal would have given Comcast a quick means to gain customers in key markets, including New York and Los Angeles, and broaden its reach nationally. If Comcast had completed the deal, the post-merger company would have gained access to nearly half of the Internet market nationwide and heightened its bargaining leverage against content creators and cable networks.

As soon as the bid was announced, consumers and advocacy groups launched massive campaigns online and in Washington, D.C., to urge regulators to nix a proposal that they claim would give one company too much clout in pay-TV and Internet services.

Time Warner Cable shares rose 4.4% Friday to $155.26. Comcast rose 0.69% to $59.64.

"This is a major victory for consumers who stood up against a media Goliath and won, and a major victory for everyone who wants a fair and competitive marketplace," Marta Tellado, CEO of Consumer Reports, said in a statement. "Comcast never was able to make a convincing case for why the merger would benefit anyone other than Comcast."

Analysts and traders have anticipated the deal termination for some time, given reports that regulators were concerned about its ramifications. Comcast on Wednesday held a series of meetings with the Justice Department and the Federal Communications Commission, the government entities that were reviewing the deal.

Bloomberg News first reported last week that the Justice Department was leaning against the merger. Officials at the FCC have also have recommended issuing a "hearing designation order" for the deal, which would let an administrative judge decide on its merits. That is often fatal for such transactions.

With the post-merger Comcast controlling a large chunk of the broadband market, it would have been in position to impose its will on new video streaming services and possibly insert anti-competitive measures in the fledgling market, analysts say. For example, Comcast could have insisted on a cable network forgoing an app on other smart-TV devices, such as Apple TV or Sling TV, if it wanted its content distributed to Comcast customers.

"The main issue is the development of new video services and new video companies," says John Bergmayer, an attorney at consumer technology advocacy group Public Knowledge, which has argued against the deal. "We are just seeing (this video) market starting to evolve. You get Comcast and (TWC) together, they're going to be able to fight that change effectively."

In the wake of those developments, a number of Wall Street analysts proclaimed the deal dead.

"Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition of Time Warner Cable is in the best interests of consumers," FCC Chairman Tom Wheeler said in a statement. "The proposed transaction would have created a company with the most broadband and the video subscribers in the nation alongside the ownership of significant programming interests."

With more streaming video options, like Netflix, proliferating and cable networks willing to experiment with new ways to stream directly to consumers, the proposed merger "would have posed an unacceptable risk to competition and innovation," he said.

In a statement, the Department of Justice said it informed the companies that it had "significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers."

"The companies' decision to abandon this deal is the best outcome for American consumers," said Attorney General Eric Holder. "This is a victory not only for the Department of Justice, but also for providers of content and streaming services who work to bring innovative products to consumers across America and around the world."

Wall Street is now looking for Comcast to return more cash to investors in the form of stock buybacks, which reduce the number of shares outstanding and boost the companies' earnings per share. In an interview with CNBC this morning Comcast's CEO Roberts said "there's no looking back," and acknowledged that the failed merger deal does, in fact, "open up room for more buybacks."

Analysts also will begin to speculate what happens to TWC, which has about 11.4 million pay-TV subscribers and is still considered a takeover target. As Marcus points out, the New York-based company has tightened its operations to get ready for integration with Comcast. And at least one party, legendary cable executive John Malone, already has expressed interest in TWC.

Charter Communications, which is controlled by Malone's Liberty Media Corp., bid about $37 billion for TWC last year prior to Comcast's higher bid. But in November, Malone replied "Hell, yes" when he was asked at an investor conference if he would consider buying TWC if Comcast's bid was not approved.

With so many business and technological challenges ahead, an industry consolidation of smaller cable companies -- such as Cox Communications, Cablevision Systems Corp., Charter and Bright House -- may be inevitable, analysts say.

Contributing: Adam Shell