You can see the basic story in the chart below showing the gap between the value of Comcast’s $45 billion stock offer and the price of Time Warner Cable’s shares: The bigger the spread, the more investors believe TWC might be left at the alter. The differential widened Friday after Bloomberg reported that Justice Department antitrust lawyers might recommend that higher ups sue to block the merger of the two largest cable companies — and didn’t change much today.
What’s going on? Only a handful of people really know, and most if not all of them aren’t talking. Comcast, TWC, and Charter reps will meet with Justice officials on Wednesday, a date set weeks ago. Meanwhile, company lawyers continue to talk with the FCC, even though it has temporarily stopped its informal 180-day clock on the deal as it waits for resolution of a court case that affects the deliberations.
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FCC conversations appear to be focusing on the company’s potential power to hurt competitors that stream video online, based on the reports of the meetings that Comcast is required to file. (Justice Department meetings are private.) The fear is that Comcast might thwart rivals by denying them access to its set top boxes or by expanding usage based pricing for broadband. Comcast told the FCC last week that consumers who don’t like its video product can switch to satellite. And in cases where there’s usage based pricing, there’s “no evidence whatsoever” that it has hurt streaming video providers.
Still, several company and FCC watchers say they’re losing confidence that Comcast and TWC will unite. “Previously, our contacts gave this deal a 70-80% chance,” Wells Fargo Securities’ Marci Ryvicker says. “Now, we are hearing that 65% is more like it” although she acknowledges that “we don’t really know how these percentages come to fruition (it just feels so random).”
Longtime public interest advocate Andrew Schwartzman says he now sees just a 40% chance that the deal happens. “My gut is the Justice Department will want more [concessions] than Comcast will be willing to give,” he says.
MoffettNathanson Research’s Craig Moffett, who in February dropped the odds of a deal to 60% from 70%, also is more pessmistic about the merger. If the Bloomberg report is accurate, then “the odds are lower than before we all knew that piece of information.”
BTIG’s Rich Greenfield held firm to his February prediction that there’s just a 30% chance that Comcast Brian Roberts will prevail. “There is no major constituency we can find that is in favor of the transaction,” he says. “Silicon Valley hates it, traditional media companies hate it and you would be hard pressed to find an individual consumer/consumer group that thinks a bigger Comcast is in their best interests.”
Wunderlich Securities’ Matthew Harrigan says that Comcast could easily walk away if federal officials ask for too many concessions. There’s no break-up fee it would have to pay TWC. What’s more, Comcast doesn’t need the additional cable systems as it sees brightening growth prospects at NBCUniversal. The entertainment business — bought for the present day equivalent of $34 billion — is now worth $66 billion “with the upside actually concentrated at the NBC TV network, Universal Pictures and Park businesses.”
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