Are Time Warner Cable and Comcast Aiming for a Merger?

Time Warner

The potential acquisition of Time Warner Cable Inc. (NYSE:TWC) by Comcast Corp. (NASDAQ:CMCSA) appears to be gaining traction. According to an exclusive report from Reuters, Comcast has hired JPMorgan Chase & Co. (NYSE:JPM) as an advisor as it seeks to evaluate the prospects of a bid for Time Warner Cable.

Reuters also suggests that Comcast is not preparing to make a preemptive bid for Time Warner Cable, which has had continuous discussions with Charter Communications Inc. (NASDAQ:CHTR) over the past several months. But, people familiar with the matter tell Reuters that Time Warner Cable considers Comcast to be the best merger partner because of its ability to make an all-cash offer and because of its better geographic fit. With Comcast’s market value of over $127 billion, it can certainly manage the capital necessary to make a significant bid for Time Warner Cable, valued at $37 billion, if it decides to move forward.

But a merger between Comcast and Time Warner Cable, the largest and second largest U.S. cable providers, respectively, would mean that one company would potentially control more than one third of the pay TV market, likely raising red flags from antitrust regulators at the Justice Department and the Federal Communications Commission. Reuters notes that the new FCC Chairman, Tom Wheeler, spent the first several days in office taking a hard line stance against wireless providers while speaking out about promoting competition.

Competition is certainly a concern, considering the raw numbers of subscribers. Comcast currently has 23 million subscribers; Time Warner Cable has about 12 million. Following the number one and number two cable providers, Cox Communications comes in at number three with 4.5 million subscribers and then Charter comes in at number four with 4.2 million subscribers. That means that a potential Comcast-Time Warner Cable merger could create a scenario where the number one cable provider has 35 million subscribers while the number two, Cox, has only 4.5 million.