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The potential collapse of Comcast Corp.'s merger with Time Warner Cable Inc. wouldn't just be a setback for those two companies. It would also unwind other pending deals and have a wide-reaching impact on the cable industry.
Staff attorneys at the Justice Department's antitrust division are nearing a recommendation to block Comcast.'s plan to buy Time Warner Cable and combine the two largest US cable providers, according to people familiar with the matter.
A rejection would be a blow to Comcast, which would have to give up on valuable cable and broadband assets in major US cities including New York and Los Angeles. The $45.2 billion merger proposal is also a way for Philadelphia-based Comcast to fend off competition from phone companies, satellite providers and Web services like Netflix. that have taken hundreds of thousands of its TV subscribers in recent years.
Another company has a lot at stake: Charter Communications, the No. 4 in the industry. Charter, which counts billionaire John Malone as its largest investor, has agreed to take control of 3.9 million Comcast cable-TV customers to ease approval for the Comcast-Time Warner Cable merger. If that fails, Charter won't get those customers. Another Charter deal, the recent agreement to purchase of Bright House Networks, would also be in jeopardy.
Charter, which lost out to Comcast a year ago in its effort to buy Time Warner Cable, could get another shot at it. Malone has said he would try again if the deal with Comcast fell apart.
A new attempt to buy Time Warner Cable could be a lot more expensive. Last year Charter and Time Warner Cable couldn't agree on a price. Since Charter made an offer in January 2014, Time Warner Cable's stock has risen 13 percent. This time around, Stamford, Connecticut-based Charter would need to pay $150 to $160 a share, much higher than its initial $132.50 bid, according to Amy Yong, a media analyst at Macquarie Capital USA Inc.
Meanwhile, Time Warner Cable has the right to block Charter's agreement with Bright House as part of its long-time arrangement to negotiate programming and other deals for Bright House, the sixth-largest cable provider. Time Warner Cable could decide to buy the smaller company under similar deal terms to fend off Charter, Yong said.
Even if the Comcast-Time Warner deal is blocked, it may not be dead. The Federal Communications Commission would need to rule on the merger. And Comcast could convince a judge to throw out a government lawsuit blocking the purchase.
If the deal falls apart, Comcast has plenty of other options, according to Rich Greenfield, an analyst at BTIG Research. The cable giant could seek to buy T-Mobile US Inc. to enter the wireless business or bolster its online video offerings with a company like Time Warner, Greenfield wrote in a blog post last month. Comcast could also make an international acquisition.
"Given the strength of Comcast's balance sheet and an insatiable appetite for acquisitions, we do not believe Comcast would be content with its existing portfolio," Greenfield wrote.
