Time Warner-Comcast to Buy Adelphia for $17.6 Billion
Time Warner and Comcast will buy Adelphia for $17.6 billion in a complex agreement that includes a court- approved $440 million fee Adelphia must pay if the deal isn’t completed, the companies announced Thurs. The widely expected agreement, nailed down late Wed., is subject to U.S. Bankruptcy Court approval. It would give Comcast about 1.8 million new subscribers for about $1.5 billion in cash, plus other assets.
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“This is a creative, complicated structure -- it unlocks value in the most efficient manner we could come up with,” Roberts told investors Thurs.: “All 3 parties have come out ahead.” Comcast would come out with about 23.3 million subscribers after shedding some of its Time Warner stake.
The deal also is subject to federal and state regulatory approvals and sign-offs from local franchising authorities. The companies estimate it will take 9-12 months to close the deal after bankruptcy court approval.
The new subscribers will beef up Comcast’s regional systems in D.C., Fla., Mass., and Pa. The deal also keeps Comcast below a 30% share of the multichannel video program distributor (MVPD) market, according to a Time Warner press release. In its most recent filing with the FCC, Comcast reported that it had about 26.3 million MVPD subscribers, about 28.5% of the market.
“Let the game begin. This is the opening kickoff after a long pregame show,” said Media Access Project Pres. Andrew Schwartzman, who’s concerned that Comcast will exceed what would have been a 30% cap on subscribers had the FCC imposed a cable ownership limit. “What remains unanswered is the appropriate cap on national cable ownership. This transaction can’t be finalized until we know the answer to that question.”
Time Warner and Comcast will divvy up Adelphia’s assets, which amounts to about 5 million cable subscribers. Time Warner will pay $9.2 billion in cash and issue common shares amounting to 16% of Time Warner Cable’s equity -- taking into account the redemption transaction with Comcast -- to Adelphia stakeholders. Comcast will pay $3.5 billion cash.
In exchange for Comcast’s 17.9% interest in Time Warner, now held in an FCC-mandated trust, Comcast will gain nearly 600,000 Time Warner subscribers and $1.8 billion. Comcast’s stake in Time Warner Entertainment, also in an FCC trust, will be exchanged for 150,000 subscribers and $133 million. Comcast’s net new cash investment after all these transactions will be $1.5 billion. After the deal, Adelphia stockholders will own 16% of Time Warner Cable. In the deal, Time Warner will add about 3 million Adelphia subscribers and 1 million Comcast subscribers, and will give Comcast about 750,000 current Time Warner subscribers, TW said.
The agreement represents a “unique and smart way to grow our company,” Time Warner CEO Dick Parsons told investors. “We'll gain important scale, enhance our subscriber clusters and accelerate growth.” Time Warner’s newly acquired systems allow the company to bulk up cable operations in 5 places, including N.Y.C. and L.A.
“We expect a smooth integration, and we'll quickly bring greater choice to consumers,” said Time Warner Cable CEO Glenn Britt, who will add the title of president. He said the company has been working on a plan to make the deal work smoothly. Comcast has made similar plans, based on its experience integrating the 13 million subscribers it acquired from AT&T Broadband in 2002, Comcast COO Steve Burke said.
Analysts generally praised the deal, with some saying it could prompt more consolidation. “We believe this transaction could spark further swapping in the cable industry,” said Merrill Lynch cable analyst Jessica Cohen. “This could lead to operational improvements across the industry and improve cable’s competitive positioning relative to both satellite and phone company competitors.”
“We view this as the most logical deal and incrementally positive for Comcast and Time Warner, but the door remains open to competing bids given the nature of the bankruptcy process,” said cable analyst Aryeh Bourkoff.
Comcast will remain on CreditWatch with positive implications for its long-term ratings as a result of the proposed purchase, but its “A-2” short-term rating was unchanged, Standard & Poor’s said Thurs. The ratings company imposed the CreditWatch rating Jan. 14 based on the company’s financial outlook. S&P said that the Adelphia plan would not affect the Time Warner’s credit rating.