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Cable Technology Feature Article

April 01, 2014

Comcast May Spin Off 3 Million Subs into Separate Company

By Tara Seals, TMCnet Contributor

Comcast has been expected to divest about 3 million cable subscribers as part of its $45 billion takeover of No. 2 cable company MSO Time Warner (News - Alert), and more details are now emerging as to how it may do that: it may sell the base to another pay-TV company; or it may spin off the assets into a separate, publicly traded entity.

A source has told Reuters that Comcast (News - Alert) has already been fielding “strong interest” from potential buyers; and will ask for about $18 billion (valuing each subscriber at $6,000).

That valuation would indicate that the divestitures will be for Tier 1 markets, according to ISI (News - Alert) analyst Vijay Jayant, considering that other publicly listed cable companies have valuations of between $4,000 and $5,000 per subscriber.

"We don't know which markets these are, but if these are contiguous subscribers in smaller markets and not New York for example, I don't know if Comcast can get $6,000 per subscriber," he told Reuters (News - Alert).

Comcast said that meanwhile, it is preparing to increase its share buyback program by more than 80 percent after Time Warner Cable shareholders vote to approve the deal. The plan would add $2.5 billion to its current $3 billion, but the cableco could edge the repurchase higher however, depending on how much it gets for the divestitures.

The acquisition, if approved by regulators, will merge the two largest cable MSOs in the country, creating the world’s largest broadband and pay-TV company.

Comcast and TWC have around 23 and 11 million subscribers, respectively, for a combined 33 to 34 million customers. Together they would reach about one in three American households. It’s clear that they realize regulators will be eyeing this one carefully before approving it — Comcast said that it does expect a “thorough, a rigorous, and an appropriately critical government review,” but that the shedding of 3 million could assuage regulator antitrust concerns.

Even post-divestiture, with 30 to 31 million, it would still be a juggernaut in the market: If the deal wins the approval of regulators, AT&T would be the next largest broadband provider, with about 16.5 million customers, followed by Verizon (News - Alert) with 9 million subscribers. For pay-TV, DirecTV is No. 2 with about 20 million subscribers, followed by Verizon FiOS at about 16 million. 

Edited by Rory J. Thompson

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