NEW YORK (The Deal) -- Comcast (CMCSA) Chairman and CEO Brian Roberts pitched his company's $67 billion purchase of Time Warner Cable (TWC) as a consumer-friendly deal that would boost competition, during a Thursday, Feb. 13, investor call.
"It is pro-consumer, pro-competitive and strongly in the public interest," Roberts said of the proposed combination of the two largest cable operators.
Time Warner Cable shareholders would receive $158.82 per share in Comcast stock. The deal values Time Warner Cable's equity at $45.2 billion. Including debt, the transaction has a value of $67 billion. The valuation translates to 7.9 times Ebitda, but would fall to about 6.7 times Ebitda when factoring in expected savings.
The offer trumps a $132.50 per share hostile offer from Charter Communications Inc., which has backing from John Malone's Liberty Media (LMCA).
Shares of Comcast dropped $1.99, or 3.6%, Thursday morning, to $53.25. Time Warner Cable stock gained $9.24, or nearly 7%, to 144.55. Charter fell $9.07, or about 6.6%, to $128.50.
"The world changes very rapidly with technology," Roberts told investors regarding the cable industry.
Pay-TV competition has increased greatly in a quarter century, he said, with some of Comcast's rivals providing national or international services. A combined Comcast and Time Warner Cable would expand in business services, he added, and push the evolution of cable services in cloud services and new devices.
Roberts' vision echoes comments by Malone, who suggested in January that cable operators needed to consolidate "to attract the developers and innovators critical to remaining competitive." Malone's Liberty Media agreed to provide capital in support of Charter's more than $60 billion cash and stock offer.
Charter showed no signs of backing down from its hostile bid after nominating a full slate of directors for Time Warner Cable's board. The target had pushed Charter to increase its offer and to boost the cash component of the offer.
Time Warner Cable CEO Robert Marcus explained the acceptance of an all-stock bid from Comcast, saying the equity of the two suitors were "apples and oranges." He added that Time Warner Cable investors would hold more than 23% of the combined companies.
Aside from representing a rebuke of Malone and Charter, Time Warner Cable's agreed deal with Comcast proposes a challenge to regulators in Washington.
"We expect the Comcast-TWC deal will draw intense antitrust/regulatory scrutiny and even some resistance, stoked by raw political pushback from cable critics and possibly rivals who would argue it's simply a 'bridge (deal) too far' or 'unthinkable,' among many other things," wrote Chris King of Stifel Nicolaus in a Thursday note. "But we ultimately expect the transaction will be approved, probably with some divestitures - as well as conditions along the lines accepted by Comcast and NBC Universal in their 2011 merger."
Comcast has said it would divest up to 3 million subscribers, and would be able to complete the transaction by the end of 2014.
"This is simply not a horizontal merger," said Comcast executive vice president David Cohen. "Comcast and Time Warner Cable do not currently compete in a single zip code in America."
Cohen said that the combination presents fewer regulatory snags than the company's purchase of NBCUniversal.
"When you look at a deal it may sound scary," he said, noting that the merged companies would control less than 30% of the cable market. "That's always been the flashpoint for the government."
Amy Yong of Macquarie Capital wrote in a report that the deal is a "best case scenario" for Time Warner Cable shareholders.
Charter could pursue Cox Communications, Suddenlink Communications or properties that Comcast and Time Warner Cable will have to divest, Yong added.
Comcast would have $71.4 billion in debt following the transaction, but executives said the company intends to maintain its investment-grade rating. Leverage would come to 2.4 times Ebitda without expected benefits from the deal.
Comcast anticipates saving $1.5 billion in operating expenses and $400 million in capital expenditures. Including the cost improvements, Comcast said its debt would come to 2.3 times Ebitda and fall to 2.2 times by the end of 2014.
Comcast retained Jimmy Lee, Jennifer Nason and Marco Caggiano of JPMorgan Chase (JPM) and Barclays bankers Bill Cohen, Paul Parker, Ricardo Zubieta, Neil Meyer and David Kase for financial advice. David Caplan and Bill Chudd of Davis Polk & Wardwell and Willkie Farr & Gallagher lawyers including Frank Buono and Jim Casserly provided legal counsel.
Advising Time Warner Cable are Morgan Stanley (MS) bankers Robert Kindler, Ari Terry and Max Herrnstein; Daniel Richards, Ketan Mehta and Jesse Davis of Citigroup Inc.; Allen & Co. LLC's Nancy Peretsman, and Blair Effron of Centerview Partners LLC.
Legal counsel to Time Warner Cable includes Paul, Weiss, Rifkind, Wharton & Garrison lawyers Robert Schumer, Ariel Deckelbaum and Ross Fieldston, and Stephen Arcano and Ann Beth Stebbins of Skadden, Arps, Slate, Meagher & Flom.