Time Warner Cable, Comcast could emerge strong from deal rubble

By Malathi Nayak and Jennifer Saba

NEW YORK (Reuters) - Even as their merger falls apart, Comcast Corp (CMCSA.O) and Time Warner Cable Inc (TWC.N) are both likely to emerge relatively unscathed, with acquisition target Time Warner Cable in particular facing a variety of options.

Comcast's decision not to pursue the $45 billion (29.89 billion pounds) purchase of TWC, confirmed by a source on Thursday, undoes a complicated, multi-party deal and leaves TWC ready to choose whether to acquire, be acquired or try to go it alone.

Comcast's domestic business remains strong, and it does not have to pay a breakup fee if it formally decides to pull the plug. But it may look abroad, since many analysts consider opposition by regulators this week as a sign Comcast should not try for more big deals in the United States.

Analysts say both companies have improved operations while the deal was being reviewed over the last 14 months.

“The next step for Time Warner Cable is waiting,” said Laura Martin, an analyst with Needham & Co.

The wait is clearly for Charter Communications, which is controlled by John Malone’s Liberty Media Corp (LMCA.O). Charter bid $37.3 billion or about $132.50 per share for TWC last year before being beaten by Comcast.

Malone, an expert deal maker known as the “cable cowboy,” was asked during a Liberty Media investor day in November whether he would pursue TWC if Comcast fell through. "Hell yes," he replied.

One issue: Martin expects Charter would offer less for TWC this time - around $130 per share - because it would have no competition. But TWC could choose other options.

"We could see (Time Warner Cable) doing a significant (stock)repurchase near term, or negotiating with Charter or Charter could come in with a hostile bid," Mike McCormack, an analyst at Jefferies & Co, said. "If they do a friendly deal, that would be preferable."

'ROLL UP' STRATEGIES

Charter is also part of the complicated Comcast deal that has fallen apart, which would have had it acquire control of subscribers divested by the merged company and to buy Bright House Networks for $10.4 billion.

Time Warner Cable has the right of first refusal in the event of a Bright House sale, however, and it could see such a deal as a way to avoid being bought by Charter.

"We could see Time Warner Cable bid for Bright House before Charter comes in (to buy it)," Spencer Kurn, an analyst at New Street Research, said. But he expects the three to come together in one form or another, and that they would not face the regulatory scrutiny of Comcast-TWC. They have fewer subscribers and there is no content ownership, he said.

“The real question now is if Time Warner Cable has any more appetite to be acquired now," said Craig Moffett, analyst with MoffettNathanson.

To increase in size, both Charter and Time Warner Cable also could pursue "roll up" strategies to buy smaller, privately held companies such as Cox Communications, Mediacom or Suddenlink.

"My guess is Time Warner simply becomes an industry consolidator moving forward," said Rich Greenfield, analyst at BTIG.

While Comcast appears to be the loser if its Time Warner Cable bid falls apart, analysts and industry sources say with its balance sheet and willingness to do deals, it can set its sights on international companies such as Liberty Global (LBTYA.O), Europe's largest cable operator.

"Any type of additional of acquisitions in the U.S. will be very heavily scrutinized," New Street's Kurn said.

"The market is thinking Liberty Global and in terms of M&A, they could swap some certain markets out but we think the government will be very critical of them expanding any bigger than they are today."

(Additional reporting by Liana Baker in New York, editing by Peter Henderson and Cynthia Osterman)