Charter’s Chances With Time Warner Cable Look Good

It is no surprise that investors are wary about deal-making in the cable sector these days. But for Charter Communications ’ proposed offer for Time Warner Cable, such concern may be overblown. Comcast ’s decision in April to abandon its bid for Time Warner Cable due to regulatory pressure took many on Wall Street by surprise. So when Charter swooped in a month later with its own offer for the cable operator, along with another offer for closely held Bright House Networks, the specter of a regulatory backlash reappeared. That may explain why the spread between the value of Charter’s offer and the price of Time Warner Cable’s stock has widened slightly to 9 percent since the deal was first announced. The market appears to see only a 50 percent probability of Charter’s deal being approved, according to New Street Research. New Street itself puts the deal’s odds of approval at 80 percent to 85 percent.

And indeed, Charter’s deal may have significantly higher odds of approval than did Comcast’s. Regulators have shown they want at least two companies in a sector with sufficient scale to implement their own competing standards and business practices. That suggests they would want a company with enough heft to rival Comcast, according to Paul Gallant of Guggenheim Securities. Comcast’s ownership of content via its NBCUniversal unit was also a government concern that wouldn’t apply to Charter, Gallant adds. Moreover, Comcast had nearly double the high-speed broadband market share of Charter, Time Warner Cable and Bright House combined as of the end of 2014, according to New Street, and would thus have less leverage over Internet-video programmers.