All eyes on Charter in wake of Comcast/Time Warner Cable merger failure

Charter Communications (NASDAQ: CHTR) is wasting little time in reengaging in acquisition talks with Time Warner Cable (NYSE: TWC) in the wake of the latter's failed acquisition by Comcast Corp. (NASDAQ: CMCSA, CMCSK), according to several media reports. Comcast waved the white flag on the troubled deal this past Friday.

Charter had offered to buy TWC for $37.3 billion last year. TWC's board rejected that bid as too small, a decision that appeared justified when Comcast offered $45 billion (see "Time Warner Cable agrees to merge with Comcast"). However, with that deal in ashes, Charter would appear TWC's most viable acquirer.

However, observers believe Charter likely will offer even less than it did last year, now that Comcast is no longer a rival. This would leave TWC's board in the unhappy position of having to decide if it wants to be acquired at a number even less then it rejected previously or finding another dance partner.

One option on the table for TWC is to exercise its first purchase option on Bright House Networks. Charter had agreed to acquire Bright House in the wake of its rejecting by TWC (see "Charter to buy Bright House Networks"). However, that transaction was contingent on the Comcast/TWC merger going through and TWC dropping its first purchase option. TWC is now in a position to gain at least some of the scale it would have enjoyed as a part of Comcast through the acquisition of Bright House Networks. Such a deal would have a much better chance of receiving regulatory approval than did its tie up with Comcast.

We surrender

Comcast dropped pursuit of TWC on Friday when it became clear that neither the Federal Communications Commission (FCC) nor the Department of Justice liked the deal (see "Deck stacks against Comcast/Time Warner Cable approval").

"Today, we move on. Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn't agree, we could walk away," said Comcast Chairman and CEO Brian L. Roberts in a prepared statement Friday. As he noted, the deal was structured so that Comcast did not have to pay a breakup fee for walking away – which indicates Comcast executives weren't entirely confident they could pull off the acquisition.

FCC Chairman Thomas Wheeler confirmed on Friday that the Commission wasn't happy with the proposed merger. "Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition of Time Warner Cable is in the best interests of consumers. The proposed transaction would have created a company with the most broadband and video subscribers in the nation alongside the ownership of significant programming interests," he said in a statement of his own. "Today, an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation especially given the growing importance of high-speed broadband to online video and innovative new services."

Comcast's near-term prospects for expansion through acquisition would appear to be limited to smaller deals in the U.S. or Canada. A search for larger acquisition might lead Comcast to Europe, according to reports.

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