Time Warner Cable Secures Fantastic Price for Shareholders

Unlike the Comcast deal, Charter’s bid for Time Warner Cable is likely to succeed, but valuations across the cable industry look stretched.

Securities In This Article
Comcast Corp Class A
(CMCSA)
Charter Communications Inc Class A
(CHTR)

This transaction will build on the strengths that TWC and Charter possess as stand-alone firms. Both firms bring solid networks to the combined company, creating a cable footprint second in size only to Comcast. The new firm, including Bright House, will own networks passing 48 million homes and businesses (Comcast passes 55 million), claiming 17 million television and 19 million internet access customers (Comcast serves 22 million of each). The combined networks complement each other particularly well in Dallas and Los Angeles. TWC's heavy investment in sports rights in LA should benefit significantly. Increased scale should provide ample opportunities for cost savings, though we were surprised that management downplayed programming cost savings expected as part of this deal.

Given that the company will remain smaller than Comcast, we expect regulators will approve the transaction. The combined company should provide the industry with another entity capable of pushing the envelope with respect to service offerings and network investment, prodding other players to keep pace. The TWC/Comcast deal failed on this measure, as it would have created a highly lopsided industry, with Comcast dwarfing the remainder of its cable peers.

Morningstar Premium Members gain exclusive access to our full Home Depot Report, including fair value estimates, consider buying/selling prices, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

More in Stocks

About the Author

Michael Hodel, CFA

Sector Director
More from Author

Michael Hodel, CFA, is a sector director, AM Communication Services, for Morningstar*. He covers U.S. telecom service providers and related firms, including AT&T, Verizon, and Comcast. His team covers media companies, global telecom service providers, and owners of telecom infrastructure, such as wireless towers and data centers. The team’s research focuses on the role that evolving networking technologies, consumer habits, and industry structures play in shaping the competitive advantages and disadvantages facing firms under coverage.

Hodel joined Morningstar in 1998, initially serving within the equity data group, responsible for collecting financial information on thousands of firms. Prior to his current position, he spent two years as a portfolio manager for Morningstar Investment Management, LLC. Previously, he served as a technology strategist responsible for telecom research, chair of Morningstar’s Economic Moat Committee, and a senior member of Morningstar’s corporate credit ratings initiative.

Hodel holds a bachelor’s degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign. He also holds a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

Sponsor Center