Late last week it was reported that Charter Communications (NASDAQ:CHTR) is preparing an offer letter for Time Warner Cable (NYSE:TWC), and now it looks like Comcast Corp. (NASDAQ:CMCSA) is weighing its own options for a Time Warner bid.
People familiar with the matter who spoke to Reuters on Monday said that Comcast is considering three different options for a potential acquisition of Time Warner. The company is discussing the potential for a full takeover, purchasing only certain Time Warner markets that would be most advantageous, or finding a partner to help take on the burden of a bid for the whole company.
Since Comcast is the number one cable operator in the country and Time Warner is the second largest, a full takeover could be difficult to get past regulators. It is worth noting that cable companies mostly compete with satellite and telecom operated TV services, rather than each other, so a combination of the top two companies may be allowed to pass. If it did, the combined Time Warner-Comcast company would have 35 million subscribers while the next largest cable operator, Cox Communications, would only have 4.5 million.
Reuters’ source said that Comcast would wait to see what kind of offer Charter makes before presenting its own bid. Sources told Bloomberg on Friday that Charter’s offer would be around $135 a share. Charter is the fourth largest cable company in the U.S. and is partly owned by famed cable investor John Malone’s conglomerate Liberty Media (NASDAQ:LMCA). Malone has been vocal about his belief that more consolidation is necessary in the cable industry.
Charter is a much smaller company than Comcast, which gives it an advantage as far as the chances of getting past regulators and a disadvantage in terms of what portion of its offer will consist of cash.
Charter’s secret weapon could be the backing of Malone and Liberty. Malone is passionate about the cable industry after having spent decades working in the field and helping grow cable into what it is today. Malone has said that consolidation is necessary in the face of cheap TV streaming services, as it would allow cable companies to achieve cost synergies that could be passed on to customers.
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