NEW YORK (TheStreet) -- The proposed $45 billion merger of Comcast (CMCSA - Get Report) and Time Warner Cable (TWC) has hit a potentially major roadblock and that could mean Time Warner will soon be wondering whether a merger with Charter Communications (CHTR) may make sense for it after all.
The Federal Communications Commission recommended an administrative hearing for the proposed Comcast-Time Warner deal, according to The Wall Street Journal. The FCC on Thursday declined to confirm if it had indeed made that decision.
The FCC doesn't typically opt to send a proposed merger to an administrative judge. But that's what it did with the proposed AT&T (T - Get Report) deal to acquire T-Mobile (TMUS - Get Report) in 2011. AT&T ended up dropping the effort to buy its rival.
The FCC's move is likely a death blow for the Comcast-Time Warner deal, BTIG analyst Rich Greenfield said via Twitter.
"It certainly seems like the possibility of approval is quite low at this point," Jefferies analyst Mike McCormack said in a phone interview on Thursday. The FCC's administrative law judge process will effectively kill the deal, he said. "That basically can drag out for years," he said. Comcast would have little interest in continuing to pursue the merger after such a long delay, he said.
There is significant upside possible from a Comcast-Time Warner deal closing, McCormack said earlier in a research note. If the deal doesn't gain regulatory approval, he expects there would be renewed interest in Time Warner Cable from the smaller cable rival Charter, he said.
About a potential Charter-Time Warner Cable pact, McCormack said "such a transaction would face less risk," in terms of the merger's execution as well as regulatory issues. He predicted it likely such a merger would be finalized if the Comcast deal fell through.
Charter, which is backed by John Malone's Liberty Broadband (LBRDA - Get Report), made a hostile offer early last year to pay $132.50 a share for Time Warner Cable and then, after Comcast stepped in, lost the bidding war. If Charter makes an offer anew, Time Warner Cable will be looking for a major premium over its prior terms, McCormack said.
At 3:25 p.m. EDT on Thursday TWC shares were priced at $149.79. Comcast shares rose to almost $60 around 3:30 p.m. EDT.
Earlier this week, Wells Fargo analyst Marci Ryvicker predicted that Charter and Time Warner Cable were likely to end up in some sort of combination. That was seconded by a Canaccord Genuity analyst.
"We believe Charter would be ready, willing and able to step in," Canaccord Genuity analyst Gregory Miller wrote earlier this week in a research note that speculated on what would happen if the Comcast-Time Warner Cable deal fell apart.
"Although we would expect an offer to be made almost immediately, we do not believe it is a foregone conclusion that Time Warner's board would accept it," he said, nothing that the company has performed reasonably well while awaiting regulatory approval and has other options. Plus he predicted there wouldn't be a significant or sustained drop in the share price of Time Warner Cable should the Comcast deal be called off.
Time Warner Cable declined to comment on the FCC's move and the options it might consider if the Comcast merger isn't finalized.
There are only three potential outcomes for an FCC review of a merger application, according to the FCC. If the transaction violates a statute or rule, the FCC would deny the merger application outright. The FCC can also opt to approve the transaction, with or without conditions. If for any reason the agency is unable to find that the transaction would serve the public interest or there's a substantial and material question of fact, it must designate the transaction for a hearing before an administrative law judge.
The Department of Justice's antitrust division was close to completing an analysis of the Comcast-Time Warner Cable deal that would recommend blocking it, published reports said Friday.
The FCC's decision was welcome news to Consumers Union, one of several groups that opposes the Comcast-Time Warner Cable merger. "We are encouraged that the FCC may share our concerns that a merger of this size would hurt consumers and competition alike," Delara Derakhshani, Consumers Union's policy counsel, said in a written statement.