Comcast and Time Warner Cable have entered negotiations to hive off cable assets worth up to $20bn in a deal with Charter Communications that aims to allay Washington’s concerns about their proposed merger.
Comcast and TWC have held talks with Charter about a deal involving between 3m and 5m subscribers during recent days, according to people familiar with the matter.
The options include the straight sale of subscribers and a scenario where Comcast and TWC spin off subscriptions into a new company and sell Charter a substantial minority stake. A combination of the two is also under consideration.
The discussions are at an early stage and no deal is certain, the people cautioned.
A deal to buy the subscriptions would mark a big victory for Charter, the company backed by cable industry veteran John Malone, which was thwarted in its attempt to buy TWC in February after Comcast emerged with a surprise bid. TWC has roughly 12m subscribers.
The all-share deal has fallen in value since it was announced from $45.2bn, or $158.82 a share, to less than $40bn as Comcast’s stock price has declined. The combined group would have 33m subscribers and supply up to 40 per cent of US households with high-speed internet access.
In a gambit designed to mitigate an immediate backlash from regulators, Comcast said it was prepared to sell 3m subscribers at the time of announcing the deal. Comcast’s chief financial officer said that the 3m subscribers would be worth at least $17bn.
At the time of the deal, relations between Comcast and Charter were said by people close to the two companies to be severely impaired. Charter had pursued its $132.50 per share bid for TWC on the basis that it believed Comcast had ruled itself out of the running.
Comcast executives made contact with their Charter peers in the days after the company made its offer public, but the talks over the subscription sales only started recently, according to people familiar with the matter.
Industry observers have speculated that it is likely that Comcast will give up more than the 3m subscribers it had offered in attempts to clear the deal with regulators.
“Once you offer something up, you only offer more up, you don’t offer less up. It is the starting point of the negotiations,” said Amy Yong, an industry analyst with Macquarie.
“There is nothing legally that requires them to give up the 3m subscribers as the deal stands,” she added.
Ms Yong noted the subscribers that Comcast will probably give up could come from the footprints of both Comcast and Time Warner Cable and that they are not likely to be from the top metro areas, such as New York City and Los Angeles.
The subscriber sale negotiations come just days after Comcast and TWC outlined the arguments for their proposed merger before regulators. Comcast is the largest provider of high-speed internet services to US households.