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Will The Comcast-Time Warner Merger Pass?

|Includes: AMZN, CHTR, Comcast Corporation (CMCSA), NFLX

Summary

Integrated media and technology company and market leader in broadband services in the US Comcast Corporation (NASDAQ: CMCSA) is set to seal its merger with Time Warner Cable (NYSE: TWC).

The merger between the two giants is currently under review from the Federal Communications Commission (FCC) and the US Department of Justice.

If the merger goes through, Comcast would control almost half of the US high speed broadband market. The synergies for Comcast are thus immense.

Time Warner would benefit from high speed broadband services which Comcast has on offer and wouldn't have to pay for the broadband coverage of its own video content.

The synergies from the deal will boost all the highest value generating components of TWC’s portfolio and will drive share prices upwards.

Integrated media and technology company and the market leader in broadband services in the US Comcast Corporation (NASDAQ: CMCSA) is set to seal its merger with video and voice services provider Time Warner Cable (NYSE: TWC). The merger between the two giants is currently under review from the Federal Communications Commission (FCC) and the US Department of Justice. Both companies remain confident that the deal will be allowed to pass and they will be able to expand avenues of cooperation. The deal represents a huge boost for both Comcast as well as Time Warner Cable. Comcast currently enjoys the leadership of the market for broadband technology in the US. If the merger goes through, Comcast would control almost half of the US high speed broadband market. The synergies for Comcast are thus immense. Time Warner on the other hand would benefit from the high speed broadband services which Comcast has on offer and would not have to pay for the broadband coverage of its own video content. Both companies thus stand to gain immensely from the merger. Broadband services are also a huge value generating prospect for Comcast so there could be upsides in store for the company's share prices. Time Warner Cable's video content (HBO in particular) is also among the most important aspects of the company's portfolio in the eyes of the investors and thus there are upsides in store for Time Warner Cable's share prices as well.

Potential upside for Comcast

Comcast has established itself as the market leader in the market for high speed broadband technology in the US. The company' broadband services form an integral part of its revenues as well as share value a well. The merger would boost the company's broadband business and the expanded coverage would mean that Comcast would hold almost 50% share in the market for high speed broadband in the US. The company would benefit from gaining access to Time Warner Cable's own high speed data services, and the merger will allow Comcast with more expansive coverage given TWC's clustered cable systems. The synergies for Comcast would come in the form of more opportunities for revenue expansion. The company would be able to break into and establish a foothold in areas where it was previously weak such as New York, LA, Washington DC and Philadelphia. The company also stands to charge higher delivery fees from the likes of Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX). Revenue expansion is thus imminent. Comcast stands to gain tremendously as a result, and its investors can definitely take more confidence in the company's long term growth prospects as the merger will allow it to eliminate areas of weakness and grow. The steady cash flows from the deal would allow Comcast to increase its dividend payments as well as carry out share buy backs in order to reward investors and add value to their investment. Comcast's customers along with its investor will benefit tremendously from the deal. Using the dividend discount model, I estimate a $70 target on the company's stock thereby indicating an upside of around 21% to current share prices of almost $58.

Potential upsides for Time Warner Cable

Along with Comcast, Time Warner Cable also stands to gain tremendously from the merger. The company will be able to harness Comcast's high speed broadband services toward its own video content and would be able to increase the appeal to subscribers for its own network portfolio which include the likes of HBO. Time Warner Cable will benefit in particular as a result of the command over the internet which will be held by Comcast after the merger. Both companies will overcome net neutrality or net speed neutrality which is the equal treatment of all content on the internet. Comcast will be able to control the broadband market to such an extent that it will be able to decide which content to push and which to bury through differentiated speeds. The company will be able to boost speeds for the content it wants to promote while dragging down speeds for other content. Time Warner Cable will be the ultimate winner here as its own video content as well as data services will be facilitated by higher broadband speeds while that of competitors will suffer. The merger thus represents tremendous growth prospects for Time Warner Cable and will open avenues for expansion of its own consumer base. The company consequently stands to gain immensely and will surely drive growth as well as investor value. There are definitely upsides in store for Time Warner Cable. The synergies from the deal will boost all the highest value generating components of Time Warner Cable's portfolio and will drive share prices upwards. Using the dividend discount model, I estimate a $167 target on the company's stock indicating a potential upside of 9% to current share prices of almost $154.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.