(Repeats with no changes (
By Soyoung Kim and Liana B. Baker
NEW YORK Feb 13 Talks between Comcast Corp
and Charter Communications Inc over how they
could together buy Time Warner Cable Inc quickly soured
as the two bickered over price and the feasibility of
engineering a split of the No. 2 U.S. cable operator.
Charter, backed by billionaire John Malone's Liberty Media
Corp, had been pursuing Time Warner for months, but was
not making any headway as its larger rival - nearly three times
its size by market value - asked for $8 billion more than what
it had offered.
But Comcast actually believed Time Warner Cable's $160 per
share counter to Charter's $132.50 per share bid was reasonable,
several people familiar with the situation said on Thursday. At
the same time, it worried that splitting a public company with
assets in multiple markets and millions of subscribers would be
tough, made even harder by the acrimony that had built up over
the past eight months between Charter and Time Warner Cable.
On Feb. 4 Comcast and Charter met in a last-ditch attempt to
see if they could work out their differences, the sources said.
They could not.
So later in the day, Comcast Chief Executive Brian Roberts
called Time Warner Cable's Rob Marcus to say that he was ready
to make a bid for all of Time Warner Cable at a figure close to
the asking price, according to the sources.
On Thursday, the two announced a $45.2 billion all-stock
deal to create a cable behemoth, with an empire stretching from
New York to Los Angeles. The deal is the largest M&A transaction
so far this year and the third-largest in the media and
entertainment sector of all time, according to Thomson Reuters
If the deal closes, it could give Comcast unprecedented
leverage in negotiations with content providers and advertisers.
For that reason it is also likely to come under keen regulatory
Representatives for Time Warner Cable, Comcast and Charter
declined to comment on details of the negotiations. All the
sources asked not to be named because the conversations were
Interviews with several people who were intimately involved
in negotiations, however, paint a picture of what went on behind
the scenes over the last few days as the deal came together and
how Charter lost a prize that it had worked so hard to win.
In some ways, these sources said, the two companies have
Charter to thank for the deal. Although Comcast, the top U.S.
cable operator, had always been intrigued by the idea of buying
Time Warner Cable, a deal was not on its list of priorities
until Charter put it in play last summer. In the end, one of the
sources said, all Charter did was "wake up the sleeping beast."
John Paulson, whose Paulson & Co hedge fund is one of Time
Warner Cable's top 10 shareholders, said of Comcast in an
interview with Reuters: "They're gentlemen, old school
businessmen. But they're also aggressive."
Charter's next steps were not clear on Thursday. It had
nominated a slate of directors to replace the entire board of
Time Warner Cable on Tuesday, but was kept in the dark as its
prize was slipping away to another buyer.
Time Warner Cable CEO Marcus, in the job for just 44 days,
said in an interview that the deal, while good for his
shareholders, is bittersweet for him.
"I was looking forward to thousands of days, not tens of
days doing this job," Marcus said.
Still, the former Paul, Weiss, Rifkind, Wharton & Garrison
LLP M&A lawyer who over the past eight years had served in
various roles at Time Warner Cable, including its top dealmaker
and chief operating officer, just pulled off one of his largest
deals ever. And thanks to his tenure at the company, he could
take home some $50 million after it closes.
"Sometimes you don't have control over how things unfold,"
THE FINAL DAYS
Things moved quickly over the last 10 days, the sources
After months of pursuing Time Warner Cable without success
and speaking informally with Comcast last year, Charter
approached Comcast once again in the middle of January about
The idea was for Charter to buy all of Time Warner Cable and
later sell off select systems to Comcast.
Comcast, with a $138 billion market value, dwarfs Charter's
$13.43 billion, as well as Time Warner Cable's $40 billion
market capitalization as of Thursday.
But as the two discussed options, Comcast became
increasingly uncomfortable with Charter's hostile approach and
more skeptical that Charter would be able to win Time Warner
Cable's blessing with its offer, the sources said.
Comcast also became increasingly excited about the prospect
of buying Time Warner Cable on its own.
Comcast felt that it could pay between $150 and $160 per
share for Time Warner Cable, the sources said.
Initially it was also willing to put cash along with stock
into the deal. But one of the sources said Time Warner Cable
wanted an all-stock deal and for Comcast to use the cash instead
to initiate a large share buyback program after the transaction
closed to boost the share price of the combined company.
That meant Time Warner Cable shareholders would end up
owning 23 percent of the combined company and also not have to
pay taxes as a result of the transaction.
In return for paying the price, however, Roberts had one
demand: Comcast would not pay a reverse break-up fee, or the
penalty that a buyer pays to the seller if it fails to close a
deal, typically because of regulatory reasons, the sources said.
The request was unusual for a deal that was sure to face
regulatory scrutiny. A few years ago, for example, AT&T Inc
agreed to pay as much as $6 billion as reverse breakup
fee, paid in cash and spectrum, as part of its deal to buy
T-Mobile USA from Deutsche Telekom for $39 billion.
The deal was shot down by regulators, and AT&T had to pay the
Some lawyers said such fees are rare in the cable industry,
"These businesses operate fairly independent enough and if
this deal does not get approved, there is not going to be that
much damage to Time Warner Cable," said Robert Townsend,
co-chair of Morrison & Foerster's global M&A practice.
Comcast CEO Roberts said he did not recall ever agreeing to
a reverse termination fee, not even in its $30 billion buyout of
majority of NBC Universal in 2009.
Time Warner Cable's board determined that the proposed
transaction should get regulatory approval because the companies
do not operate in the same markets, the sources said. They
agreed to Comcast's condition.
Talks were further aided by the fact that executives from
the two companies knew each other and were friendly, the sources
said. They also had worked together on a deal previously.
In 2006, the two split up bankrupt cable operator Adelphia
Communications in a complicated $17.6 billion transaction.
Marcus was Time Warner's lead negotiator on the deal at that
This time around, the two chief executives, along with
Comcast Chief Financial Officer Michael Angelakis and Time
Warner Cable's Arthur Minson, negotiated key points of the deal
by phone as well as in-person meetings in New York, without
relying much on advisers.
The two sides agreed a final deal price of $158.82 per share
on Monday morning, and the board of each company approved the
transaction on Wednesday evening.
"Throughout the whole process with Charter, I consistently
said one thing - insufficient value. They didn't value the
unique asset that was Time Warner Cable," Marcus said. "On the
simplest level, the TWC-Comcast merger was superior."