Can New York Turn the Tables on the Comcast-Time Warner Mega Merger?
New York state regulators could turn the tables on Comcast Corp. (NASDAQ:CMCSA) and Time Warner Cable Inc. (NYSE:TWC) with the flick of their pen. Sources tell the NY Post that New York state is considering edits to state laws that would give cable regulators — specifically, the Public Service Commission — more authority, bringing cable oversight in line with the way that other utilities like gas and oil companies are regulated. Moreover, the state could adopt a “guilty until proven innocent” position on the proposed merger between the two cable giants, forcing the companies to demonstrate that the deal would be in the best interest of the public before allowing it to proceed.
“We’re modernizing New York’s laws to reflect the realities of New York’s marketplace,” said an official of New York Governor Andrew Cuomo’s office. Those realities include the idea that a high-speed internet connection qualifies as infrastructure in the 21st century economy, as Harvard Law School professor Susan Crawford argued in a recent Bloomberg article, and that the Comcast-Time Warner deal poses serious antitrust concerns. As it stands, a post-merger Comcast would control about 40 percent of the broadband Internet market.
The new Comcast would have a full 30 percent of the U.S. pay television market (about 30 million subscribers) under its belt and a presence in 19 out of 20 of the nation’s largest television markets. This would make it the biggest, baddest provider in the country. According to data compiled by Bloomberg, at the end of 2013, the next-largest competitor, AT&T (NYSE:T), had 21.9 million video and broadband subscribers, and Verizon (NYSE:VZ) had 14.3 million.
Through the proposed “strategic combination,” Comcast will purchase 100 percent of Time Warner in a stock-for-stock transaction, acquiring each of Time Warner’s 284.9 million outstanding shares for 2.875 shares of CMCSA in an equity deal valued at approximately $45.2 billion, or about $158.82 per share. Time Warner shareholders will be left owning 23 percent of Comcast’s common stock. Comcast Chairman and CEO Brian Roberts added that the company intends “to expand our buyback program by an additional $10 billion at the close of the transaction. We believe there are meaningful operational efficiencies and the adjusted purchase multiple is approximately 6.7x Operating Cash Flow.”
Speaking of cash flow and operational efficiencies, Comcast and Time Warner executives believe the deal will be accretive to cash flow and that they can squeeze about $1.5 billion in efficiencies from the combined entity. The veracity of this claim has been questioned by skeptics of the deal, but scale is a compelling argument.
“The new cable company, which will be led by President and CEO Neil Smit, will generate multiple pro-consumer and pro-competitive benefits, including an accelerated deployment of existing and new innovative products and services for millions of customers,” the companies said in the merger announcement.
But some media giants aren’t drinking the Kool Aid. Speaking at an investor conference on Tuesday, Twenty-First Century Fox Inc.’s (NASDAQ:FOXA) President and Chief Executive Chase Carey raised concerns over the merger, suggesting that a new mega-carrier could evolve into a de-facto monopoly.
Despite the friction, Comcast executives and spokespeople appear unfazed. ”We have seen the proposed amendments from the Governor [of New York], and are not troubled by these amended procedures,” said a Comcast spokesperson in a statement to the NY Post. “We are confident that the pro-competitive, pro-consumer benefits like faster Internet speeds and improved video options resulting from the transaction are compelling and will result in approval from the state.”
New York is just one of many states, including Florida, Indiana, and Pennsylvania, where Comcast is headquartered, are either reviewing the merger independently or cooperating with the Department of Justice’s review of the deal.