Comcast and Time Warner Cable, the country's biggest cable companies, agreed to merge in an all-stock deal Thursday that would create a pay-television giant with approximately 30 million subscribers, confirming wide reports of their proposed combination late Wednesday night.
Though consumer watchdog groups have already come out in opposition to such a deal, the companies pitched their marriage as something that would save money and improve their technological wherewithal.
"This transaction will create a leading technology and innovation company, differentiated by its ability to deliver ground-breaking products on a superior network while leveraging a national platform to create operating efficiencies and economies of scale," they said in a release.
The deal undercuts attempts by Charter, the country's fourth biggest cable provider, to take over its bigger rival Time Warner Cable. The larger cable company repeatedly spurned Charter's proposals, calling them too low. Charter had even worked in coordination with Comcast, agreeing with the still larger competitor on assets that Charter would sell to Comcast to make a Charter-TWC merger more palatable to antitrust authorities.
For consumers, the merger agreement between Time Warner Cable and Comcast will have no immediate repercussions, but the possibility of their joining has already raised the hackles of consumer advocates. They said it would raise costs for consumers and crimp rivals' innovation.
John Bergmayer, a lawyer at Public Knowledge, said that "an enlarged Comcast would be the bully in the schoolyard...it is simply dangerous for a large proportion of our nation's critical communications infrastructure to be in the hands of just one provider." Free Press CEO Craig Aaron said that "in an already uncompetitive market with high prices that keep going up and up, a merger of the two biggest cable companies should be unthinkable. This deal would be a disaster for consumers and must be stopped."
A deal of this size, combining the two biggest players in an industry, will face keen regulatory scrutiny. One thing working in the companies' favor is the fact that they seldom directly compete in individual markets. Comcast will acquire about 11 million Time Warner Cable subscribers, but Comcast said it is prepared to divest itself of about 3 million subscribers to smooth regulatory approval.
That element -- the scant geographic overlap -- is part of why the combination is so attractive for the companies: Comcast will get hold of high-profile markets like New York and Southern California, for example.
On Thursday, the companies said that Comcast would acquire all 284.9 million Time Warner Cable shares in exchange for Comcast stock, worth about $45.2 billion in equity value. They said the transaction will generate about $1.5 billion in saved costs from operating efficiencies. Comcast President and CEO Neil Smit will run the new company.
The new cable company would accelerate rollout of products, like Comcast's widely admired X1 operating system, according to the companies. "American consumers will benefit from technological innovations, including a superior video experience, higher broadband speeds, and the fastest in-home Wi-Fi," they said.
Comcast and Time Warner Cable will host a conference call at 5:30 a.m. PT to discuss the deal. It will be webcast on their investor relations pages.