Feb. 14--So you wake to discover that Comcast Corp. is buying Time Warner Cable Inc. for $45.2 billion and think: Whoa, how can I get a piece of that action?
Well, you can still jump in, albeit a bit late and at a risk, and possibly see some benefit from investing in either company, according to analysts.
Of course, it is best if you already had some skin in the game, owning stock in either company, but especially Time Warner.
"Let's start with the obvious here: the big winner is Time Warner Cable," wrote analyst Craig Moffett of MoffettNathanson in a report to investors. That is because Comcast is offering about $159 for each share of Time Warner stock -- nearly $27 more per share than was offered by rival Charter Communications.
"For a stock that was trading below $100 when this all began, that's pretty heady," Moffett wrote.
Wrote Amy Yong, an analyst with the Macquarie Group: "The deal gives (Time Warner) shareholders the opportunity to own roughly 25 percent of (the combined companies) and leave Time Warner Cable in the hands of a management team with a proven operational track record."
With Time Warner trading at about $145 (up about 7 percent) most of Thursday, there remains opportunities for investors then, if the deal does not come undone or is altered as a result of serious regulatory issues that still must be navigated.
As for Comcast, well, at first blush investors were not happy with the deal: shares fell about 4 percent, trading around $53.
One reason for that is Comcast is creating new stock to purchase Time Warner, thus diluting the value of its current shares. However, the company predicts it will see $1.5 billion in "operating efficiencies" going forward that would more than offset that dilution.
Tom Clancy, vice president for research at the Philadelphia Trust Co., said it seemed reasonable to assume that Comcast will benefit from the clout it garners by swallowing Time Warner and winding up with in excess of 30 million subscribers. That will give it increased leverage in negotiating prices with content providers, ultimately reducing its costs, Clancy said.
That should accrue to shareholders further down the line, he said.
Dave Novosel, an analyst with Gimme Credit, agreed that the long-term synergies of the deal could benefit stockholders, although he saw it "slightly negative" in the short term because of the dilution of shares.
Much hinges on how regulators view the deal.
"A deal may face a fierce battle in Washington as you are merging the two largest cable operators," wrote Tony Wible, an analyst for Janney Capital Markets. "Clearly there is a solid argument to be made that the deal: 1) helps consumers by keeping programming costs in check, 2) does not change the competitive environment given that the two do not compete today. . .."
Wible rated Comcast a "buy" with a fair value estimate of $59.50.
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