While continued sluggishness in retail and job growth data lately cast ominous clouds over the health of the U.S. consumer discretionary sector, the recently signed deal between Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc. (NYSE:TWC) might give a much-needed boost to the space. The merger means a lot to the cable industry, given Comcast and Time Warner Cable are the top two operators in the space.
Inside the Deal
On February 13, Comcast has announced an all-stock take-over agreement of Time Warner Cable. Comcast’s bid of approximately $159 per share will add up to a total consideration of $45.2 billion. Each share of Time Warner Cable will translate into 2.875 Comcast shares.
Following the completion of the transaction, Time Warner Cable shareholders will hold around 23% of the merged body. The deal is expected to be wrapped up within a year, subject to regulatory approval.
Investors should note that Time Warner Cable, which has been an interesting acquisition target for quite some, repeatedly was offered decent sums by the likes of Charter Communications Inc. (CHTR) and Liberty Media Corp. (LMCA). However, Time Warner Cable declined those proposals as it viewed the offer prices as too low.
We view the deal as strategically positive as both operate under the same group thus deriving significant cost synergies. Both the parties can gain on each other’s exposure profile.
The deal’s effectiveness can further be validated by Comcast’s plan to bolster its share repurchase activity to $10 billion at the close of the transaction, even after its recent plan to expand share buyback authority to $7.5 billion from $1 billion (read: Apple Stock Repurchases Puts Buyback ETF in Focus).
Upon completion of the deal, the merged entity will likely derive as much as $1.5 billion of operating savings, of which 50% may be realized within the first year after merger.
Market & ETF Impact
The shares of Comcast and Time Warner Cable saw opposite movements at the close of February 13 with the former slipping and the latter moving northward. However, Comcast gained slightly (0.29%) in after hours trading while Time Warner Cable dipped 0.06%.
Notably, Time Warner Cable’s latest share price of $144.73 is still more than 8% below the offer price. Investors might have sought to capture this near-term potential in Time Warner Cable. Trading volumes were about 8 times higher than the average level for both the stocks.
Quite expectedly, if the deal gets approved, Comcast will emerge as a much bigger entity in the U.S. Cable TV space. Keeping that in mind, it would be prudent to identify some ETFs having sizable exposure in Comcast indicating that these ETFs might hugely benefit from Comcast’s potential uptrend and enhanced buyback. Below, we have highlighted some of the funds: