Pacific Crest Answers Who Wins And Who Loses From The Failed Comcast-Time Warner Deal

In a report published Thursday, Pacific Crest analyst Andy Hargreaves commented on who stands to win and lose after it was reported Comcast Corporation CMCSA intends to drop its bid to acquire Time Warner Cable Inc TWC. According to Hargreaves, a failed bid would be viewed as a "slight negative" for the cable companies as it would imply an environment of more strict regulatory oversight, resulting in lower broadband pricing power. The analyst added that broadband pricing is a key growth driver for cable companies, so any perceived limitation of future price hikes could pressure trading multiples for cable company stocks, including Comcast and Time Warner. Time Warner Loses Absent an acquisition (or even the presence of M&A speculation), shares of Time Warner could trade at or below a 7.0x EV/EBITDA multiple, implying a fair value of $134. Meanwhile, many investors are assuming Charter Communications, Inc. CHTR will provide a "backup" offer if the Comcast offer is dropped. While this is possible, the analyst doesn't see any "significant rationale" for Charter to pay a premium to the current market price of around $149. Netflix Can Breathe A Sigh Of Relief Hargreaves noted that a combined Comcast and Time Warner entity would generate "significant" scale to invest in content and technology. However, as a standalone company, Comcast's competitive positioning against Netflix, Inc. NFLX is lower than it would be as a much larger business. In other words, Comcast's "less imposing scale" is a "slight positive" for Netflix. Rovi's Guidance Anticipated A Merger According to Hargreaves, Rovi Corporation ROVI's 2015 guidance anticipated Time Warner Cable subscribers falling under the Comcast umbrella and become non-paying subscribers. Comcast ending its acquisition anticipations will result in Time Warner's subscribers continue to generate revenue and cash for Rovi through at least the end of September. The analyst added that this could add $5 million to its 2015 operating profit and $0.05 to 2015 earnings per share. In addition, Comcast as a stand-alone company should provide a "more comfortable" negotiating counter-party for Rovi. No Impact To AT&T/DirecTV Hargreaves also stated that Comcast dropping its bid for Time Warner won't affect the AT&T Inc. T and DIRECTV DTV merger and the proposed combination will "go through as submitted."