YOUNGSTOWN, Ohio (WKBN) — Those who use Time Warner for their cable or Internet soon could be getting their service from another source.
Executives with Comcast, the nation’s largest cable operator, have offered more than $45 billion in stock to take over Time Warner, which is now No. 2. Local experts who study the communications industry believe the move will concentrate Comcast’s buying power to provide programming and other services.
“Now Comcast will apparently shift, or do away with 3 million customers, and have about 30 million. The upside of it is it gives Comcast more clout when it negotiates with content producers,” said Dr. Walter Mathews, a professor with Youngstown State University’s Department of Communications.
Others said the move will help Comcast compete against the growing wireless communication industry, which is led by AT & T. Time Warner has about 28 percent of the local cable market in this area, but that’s down from about 35 percent just five years ago.
From the consumer side, Mathews thinks a larger Comcast will give the company more clout when it comes to bargaining with content providers over what it has to pay for programming and that ultimately could affect what customers see on their monthly bills.
The all-stock deal, which was approved by the boards of both companies, trumps a proposal from Charter Communications to buy Time Warner Cable for about $38 billion. It is expected to close by the end of the year, pending shareholder and regulatory approvals.
The combined entity will end up with about 30 million subscribers, including customers in the Mahoning and Shenango valleys. The two companies already have strongholds in major markets like New York, Chicago and Los Angeles. Comcast has 22 million pay TV customers but plans to divest 3 million after the deal closes. Time Warner Cable will contribute 11.2 million customers.
The price amounts to $158.82 per share for Time Warner Cable and is about 17 percent above that stock’s Wednesday closing price of $135.31. It tops a Charter Communications Inc. proposal to buy Time Warner Cable for about $132.50 per share.
Charter had pursued Time Warner Cable for months, but Time Warner Cable CEO Rob Marcus had consistently rejected what he called a lowball offer, saying he’d cut a deal for $160 per share in cash and stock.
For a time, Comcast, which also owns NBCUniversal, stayed in the background, waiting to purchase any chunk of subscribers that a combined Charter-Time Warner Cable would sell off. Charter had planned to finance its bid with $25 billion in new debt. As part of a plan to pay off the debt quickly, the company considered selling off some of its territories after a deal had closed. Time Warner Cable’s Marcus had also balked at the huge debt burden the Charter takeover represented.
The Comcast-Time Warner Cable combination’s total of roughly 30 million customers is believed to be a level that won’t trigger the concern of antitrust authorities. Divesting subscribers could help the deal get approved more quickly.
Comcast also is taking the position that because Comcast and Time Warner Cable don’t serve overlapping markets, their combination won’t reduce competition for consumers. Comcast operates in Chicago and mainly in northeast markets that also include Boston, Washington and its home base of Philadelphia. Time Warner Cable has strongholds around its headquarters in New York as well in Los Angeles, Dallas and Milwaukee.
In many of those areas, the combined Comcast/Time Warner Cable will face competition from rivals AT&T and Verizon, which provide both pay TV services and Internet hookups. Both AT&T and Verizon are growing quickly. They ended 2013 with 5.5 million and 5.3 million pay TV subscribers, respectively.
Time Warner Cable shareholders will receive 2.875 Comcast shares for every Time Warner Cable share they own. Once the deal is final, they will end up owning about 23 percent of the combined company.
Comcast and Time Warner Cable are expected to save $1.5 billion in annual costs over three years, with half of that realized in the first year.
Comcast also plans to add an additional $10 billion in share buybacks at the close of the deal, on top of a recent plan to boost its share buyback authority to $7.5 billion from $1 billion.
Conceding that it had lost the takeover battle, Charter issued a statement Wednesday saying, “Charter has always maintained that our greatest opportunity to create value for shareholders is by executing our current business plan, and that we will continue to be disciplined in this and any other (merger and acquisition) activity we pursue.”
Even before the deal had been formally announced, it was being denounced. Public Knowledge, a Washington-based consumer rights group, said in a statement Wednesday that regulators must stop the deal, because it would give Comcast “unprecedented gatekeeper power in several important markets.”
“An enlarged Comcast would be the bully in the schoolyard,” it said.
Shares of Time Warner Cable jumped 7, or $9.46, to $144.77 Thursday morning after the deal was announced, while broader trading indexes slipped less than 1 percent. Comcast shares fell more than 3 percent, or $1.74, to $53.50.
The Associated Press contributed to this report.