Time Warner vs. Comcast

¶ … Warner and Comcast Merger

In the last several years, cable companies have been experiencing tremendous amounts of consolidation. This is because new competitors are entering the marketplace and they will often use bundling to sell a variety of services such as: telephone, Internet and HD TV. Comcast has been aggressively acquiring assets to improve their competitive position. (Standard and Poor's)

Recently, the proposed merger with Time Warner is supposed to enable them to consolidate market share and become more competitive. (Baker) To fully understand why Comcast has been taking this kind of approach, requires looking carefully at the deal itself. This will be accomplished by examining the firm's intentions and past transactions. Together, these elements will highlight the basic strategy Comcast is utilizing to adjust with changes inside the marketplace. (Standard and Poor's)

The authors of The Cure of the Mogul write: Mergers and acquisitions (M&A) do not create value. Is this the full story when it comes to Comcast's intentions?

Yes and no. There are times, when mergers and acquisitions do not create any kind of value. A good example of this can be seen with the AOL - Time Warner merger. At the time, this was considered to provide Time Warner with a large ISP (who had an enormous customer base). The problem is that both companies had completely different cultures and integrating them was very difficult. To make matters worse, AOL started losing customers to broadband and had no way of counteracting what was occurring. The result is that Time Warner sold them off for considerably less than they paid for it. (Standard and Poor's) (Knee) (Klein)

However, there are other situations, where these kinds of deals provide significant benefits to shareholders. This is because certain firms are offering the management with the flexibility to use new technology and their customer base to enhance their dominance inside the sector. Comcast has been using this approach to increase their market share and supremacy inside specific segments since the mid 1990s. Some of the most successful acquisitions include: QVC, Media One, MGM, Susquehanna Communications, Adelphia and NBC Universal. Over the years, this has transformed the company from just another cable provider to a firm that controls a number of entertainment properties. This has increased its dominance and revenues from embracing this kind of strategy. In this case, mergers have been shown to create value for the acquired and parent companies. For Comcast, this strategy has enabled them to evolve with changes inside the marketplace. (Standard and Poor's)

As a result, the insights from Knee (2009) are not the full story when it comes to Comcast. This is because the authors are taking a subjective view when looking at why mergers did not work. In the past, the firm has traditionally focused on those areas that can help them to grow in the longer term. Sometimes, they will not be successful, from realizing key differences within the two organizations. The attempts to buy Disney are the classic example of this. As Comcast wanted to acquire the firm, yet the shareholders of Disney were opposed to it. Instead, of trying to integrate two organizations together in a hostile environment, the management simply walked away from the deal. (Knee)

This is illustrating how mergers must be utilized as an avenue for integrating two firms who can complement each other. In this case, one could argue that Comcast's intentions are based upon locating those assets that will enhance their competitive position. Anything that does not meet these standards will never be considered. (Knee) (Plunkett)

Comcast has a legacy of engaging large, game changing M&A deals, including the buying NBC-Universal. But is the Time Warner Cable acquisition different, and if so why?

The Time Warner acquisition is similar to past deals. This is because Comcast is acquiring their customer base for cable, Internet and home phone lines. These areas will allow the company to increase its dominance inside the marketplace. When this happens, the firm can expand their reach and the kinds of products they are delivering. (Baker) (Knee)

They can be used to market specific content through some of their other segments (such as: NBC Universal). These shifts enable them to offer cliental with customizable solutions which are more affordable. This helps the company to become more competitive by taking this kind of approach. (Baker) (Knee)

Using the analytical tools the author presents, is the Comcast proposed acquisition strategic or an example of how media moguls manage to destroy value through acquisitions. Why is it strategic, or why not?

The Comcast acquisition is considered to be very strategic. This is occurring through the firm constructing a moat to improve their dominance inside specific regions. It is considered to be strategic, based upon the fact that the firm will only go into areas where they have no coverage. This allows them to compete in new markets and extend their reach across the entire country. (Baker)

How is the proposed deal understood using our analytic tools? How is it being misunderstood, and who is misunderstanding the dynamics of the deal? Does the proposed deal meet your stringent strategic planning requirements?

The proposed deal is understood based upon the value it is creating by enhancing Comcast's competitive position. This enables the firm to show stakeholders the way they are enhancing its business model. However, some will fail to comprehend what is happening by not seeing the value which is created. In this case, they would argue that the Time Warner merger is overlapping specific segments already covered. Those who are engaging in these activities are: individuals inside the popular press, who believe that mergers do not create any long-term value for shareholders. As a result, the proposed deal does meet the stringent strategic planning requirements. This occurs through identifying assets to enhance their market position. Those who are against it, is failing to understand how this will create value for everyone over the longer term. (Baker)