Comcast and Charter May Divide and Conquer With a Time Warner Deal

Comcast

After much speculation, Comcast Corp. (NASDAQ:CMCSA), currently the leading cable provider in the country, and Charter Communications, Inc. (NASDAQ:CHTR), are in talks regarding the possible acquisition of Time Warner Cable Inc. (NYSE:TWC) — or parts of it, anyway, according to a Reuters report on Friday. Comcast said it would be interested in a deal that would give it the New York market, along with parts of New England — particularly those areas where it does not already have systems set up, such as Maine.

Comcast already has operations in Connecticut and New Jersey, so adding New York would be a natural next move for the company. Similarly, the cable provider currently dominates much of New England, particularly the Boston area, so Maine would also be a logical place to expand operations.

Other areas where Time Warner Cable has markets are less attractive to the cable giant, however. Los Angeles, for instance, doesn’t appeal to Comcast. The city is currently one of Time Warner Cable’s largest markets. The discussions between Comcast and Charter have become more legitimate recently, partially because Comcast says Time Warner Cable has priced itself too high.

A number of different scenarios are on the table, although a Reuters source cautions that the talks could fall apart at any time and there are no guarantees that a deal will move forward. One possible scenario involves Charter buying Time Warner Cable outright, and then sell off certain markets to Comcast in order to generate cash, a strategy one source says could play out well; “a combined Time Warner Cable and Charter could pay off its debt quickly if it turns around and sells off some of its pieces to Comcast,” the source told Reuters.

Comcast’s other possible option is to make a solo bid for the cable company, but recently Comcast has hinted that it would be reluctant to do so at $150-$160 a share, which it says it too high a price considering Time Warner Cable’s operational challenges. Previously, Charter offered to buy Time Warner for $132.50 a share, or about $37.3 billion with shares outstanding, but the offer was rejected. Time Warner replied saying it would consider an offer at $160 a share.

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