Comcast has filed license applications with the FCC for its spin-off of 3.9 million customers in the proposed merger with Time Warner Cable. They include the public interest statement and exhibits as well. Details include the sale of cable systems with 1.4 million subscribers to Charter and the spinoff of an additional 2.5 million subscribers into a new publicly traded cable provider that Comcast is creating and spinning off–SpinCo. Former Insight Communications co-founder and CEO and 40-year cable industry vet Michael Willner has agreed to serve as President and CEO.
Said Comcast in its filing: “The SpinCo transaction will create substantial public interest benefits. While SpinCo will be a new company, it will be larger than all but four other cable companies in the United States and will have a tightly integrated, contiguous service footprint. This scale and geographic scope will facilitate investment in innovation and high-quality services within SpinCo’s footprint. From the outset, SpinCo will be well positioned to compete aggressively in the highly competitive markets for high-speed Internet, voice, and video services.”
Charter will form a new holding company that will own about a third of the Comcast spinoff, while shareholders of Comcast and the former TWC will own the remaining 67% of the new company.
The divestiture follows through on Comcast’s willingness to reduce its post-merger managed subscriber total to less than 30% of total national MVPD subscribers, while maintaining the compelling strategic and financial rationale of its proposed merger with TWC.
Pursuant to the deal and following the close of the merger, Charter will acquire approximately 1.4 million existing Time Warner Cable subscribers, increasing Charter’s current residential and commercial video customer base from 4.4 million to approximately 5.7 million, and making Charter the second largest cable operator in the US.
Comcast shareholders, including the former Time Warner Cable shareholders, are expected to own approximately 67% of SpinCo, while New Charter is expected to directly own approximately 33 percent of SpinCo. SpinCo expects to incur leverage of approximately 5 times estimated pro-forma EBITDA, and New Charter will then acquire its interest in SpinCo by issuing New Charter stock to Comcast shareholders (including former Time Warner Cable shareholders). SpinCo’s nine-member Board of Directors will include six independent directors and three directors designated by Charter. Comcast will hold no ownership interest in SpinCo (or Charter) and will have no role in managing SpinCo.
The transfer of systems, asset purchase and SpinCo acquisition will be valued at a 7.125 X 2014 EBITDA multiple (as defined by the parties), and Charter will make additional payments to Comcast over time as tax benefits from the asset sale are realized.
Comcast will not own shares in either Charter or SpinCo after the closing of the spin-off, the company says, and for the first eight years would not be allowed to own more than 1% of SpinCo shares: “In short, SpinCo will be entirely independent of Comcast.”
Comcast said in the application that the geographic contiguity of its system swaps and the expanded presence of the combined Comcast/TWC will produce economies of scale and scope and other efficiencies for Comcast, which will ultimately redound to the benefit of Comcast’s residential and business customers.
