Exclusive: Comcast taps JPMorgan on potential Time Warner Cable bid - sources

Reuters
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The offices and studios of Comcast Entertainment Group which operates E! Entertainment Television, the …

By Soyoung Kim, Nicola Leske and Liana B. Baker

NEW YORK (Reuters) - Top U.S. cable provider Comcast Corp has tapped JPMorgan Chase & Co for advice as it evaluates a potential bid for Time Warner Cable Inc, people familiar with the matter said.

Comcast brought in the bank to help review options as speculation about cable industry consolidation increased in the past several months, one of the people said.

Comcast does not plan to make a pre-emptive bid for No. 2 cable provider Time Warner Cable, the subject of a months-long pursuit by much smaller rival Charter Communications Inc, but could jump in if signs emerge that Charter is getting close to a deal, the people said.

Comcast, which has a market value of more than $127 billion, might also decide against doing any deal, they added.

The people asked not to be identified by name because the matter is not public. Representatives for Comcast and JPMorgan declined to comment.

Time Warner Cable, which has said it was open to a deal at the right price, considers Comcast to be the best merger partner because the larger rival can afford to make an all-cash offer and provides a better geographic fit, separate people familiar with the matter have said.

Charter has a market value of about $13 billion, much less than Time Warner Cable's $37 billion, and would need to raise a large amount of debt to finance a deal.

A Comcast takeover bid would likely face close scrutiny from antitrust regulators at the Justice Department and the Federal Communications Commission because it would create a dominant company controlling more than one third of the pay TV market.

Comcast currently has 23 million video subscribers while Time Warner Cable has about 12 million. In comparison, third-ranked Cox Communications has 4.5 million and No.4 player Charter has 4.2 million.

Newly installed FCC Chairman Tom Wheeler has also spoken out in favor of competition. A former chief at both the cable industry and wireless industry trade groups, Wheeler spent his first days in office taking a hard line against wireless providers and continuously speaking about promoting competition.

But a large cable merger is still possible because cable operators generally do not offer services in the same markets and instead compete with satellite and telcom TV services, industry experts have said.

CHARTER'S CHALLENGES

Charter, in which cable billionaire John Malone's Liberty Media Corp owns a 27 percent stake, has its own challenges.

The company offered to buy Time Warner Cable earlier this spring, but was rebuffed because it did not offer a premium, Reuters previously reported.

And any deal has gotten much more expensive since, with takeover speculation pushing Time Warner Cable' shares above $130 from the mid $90s in May -- when Charter first approached the company.

Charter's pursuit of Time Warner Cable also attracted the interest of privately held Cox Communications, which is examining its own options for a deal with the second-largest U.S. cable operator, people familiar with the matter said.

Any suitor would likely need to bid at least $150 per share to be considered seriously by Time Warner Cable's board, one person familiar with the matter said.

A tie-up with Charter raises particular concerns for Time Warner Cable because any offer from the smaller rival would have a large stock component and heavily indebt the combined company, people familiar with the matter have said.

Charter's stock price has increased about 70 percent this year, which could be viewed as an inflated currency by Time Warner Cable shareholders.

Depending on the amount of debt it raises, a Charter-Time Warner Cable combination could push up the merged company's leverage ratio to five or six times. Time Warner Cable's current leverage is just over three times while Charter's leverage ratio is 4.9 times.

Steve Soranno, an equity analyst at Calvert Investment Management, which has $13 billion under management and owns Time Warner Cable shares, said he is not convinced if he wants to hold shares in a merged Charter-Time Warner Cable.

One of the reasons the firm likes Time Warner Cable is because the company has been reducing its debt level and has a stable cash flow structure, he said.

"In order to accept a deal with Charter, shareholders have to accept a fundamentally different capital structure with a heck of a lot more debt. How solid is its growth profile? How solid is the stock you're getting?" Soranno said.

(Reporting by Soyoung Kim, Nicola Leske and Liana B. Baker in New York, additional reporting by Nadia Damouni and Alina Selyukh; Editing by Gerald E. McCormick, Andre Grenon and Bob Burgdorfer)

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