Comcast Wants Time Warner So Bad It Is Giving Up 3M Customers

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Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) have announced that should their mega-merger be approved by regulators, Comcast will divest approximately 3.9 million subscribers to Charter Communications (NASDAQ:CHTR), which will make Charter leapfrog Cox Communications to become the nation’s second-largest cable operator, behind the beefed-up Comcast. The companies announced the deal on Monday morning.

Comcast and Charter will complete the deal in three separate transactions. The first transaction will involve Comcast selling Charter 1.4 million Time Warner Cable customers for cash, though how much it would cost Charter was not revealed. The second transaction will involve Charter and Comcast swapping 1.6 million customers, which will result in “improving the geographic presence of both companies, leading to greater operational efficiencies, improved technology deployment and enhanced customer service,” according to a joint press release from two cable operators.

The third transaction involves Comcast creating a new publicly owned cable company called SpinCo that will consist of 2.5 million current Comcast subscribers. Comcast and Time Warner shareholders — which will be just Comcast shareholders should the merger go through — will own 67 percent of SpinCo, while shareholders of the new Charter will own 33 percent of the company. Comcast will have no ownership interest in SpinCo, which will be managed entirely by Charter.

These three deals will result in the merged Comcast-Time Warner entity only owning about 30 percent of the total U.S. cable market, according to the companies’ press release. Comcast said that even with these transactions with Charter, the merger with Time Warner will still result in $1.5 billion in operating efficiencies, and Comcast shareholders will receive value through shares in SpinCo. In an investor presentation on the deals, provided by Reuters, the companies estimated that SpinCo’s enterprise value would be around $14.3 billion.

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