Charter and Time Warner Cable Try Again



Time Warner returns to Charter’s arms

On April 24, Comcast (CMCSA) officially pulled the plug on its attempted merger with Time Warner Cable (TWC). Comcast faced opposition from the Department of Justice (or DOJ) on the antitrust front and the Federal Communications Commission (or FCC), so it decided to terminate the offer.

Just over a month later, Time Warner Cable inked a deal with an old suitor, Charter Communications (CHTR). Charter had made an unsolicited approach to Time Warner Cable in early 2014. which Time Warner rejected as a lowball bid for the company. Charter obviously sharpened its pencil while the Comcast deal was pending and came back with an offer 48% higher than the previous bid.

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Washington hated the Comcast deal

Washington despised the Time Warner Cable–Comcast transaction from day one. Democratic Senator Al Franken of Minnesota aggressively pushed the FCC and the DOJ to investigate the transaction closely. In fact, he has also pushed the two agencies to carefully review the Time Warner Cable–Charter Communications transaction.

You often get paid to wait in broken deals

Typically, arbitrageurs will blow out of a target in a broken deal pretty quickly. Since there’s no longer an event or a catalyst to realize value, they typically exit the position. In most instances, something like a MAC (material adverse change) on the part of the target company is a sensible strategy. However, when a deal breaks for regulatory reasons that have nothing to do with the inherent value of the target, sometimes it makes sense to keep a position ongoing in the event another buyer emerges. In this case, you would have made about 18% when Charter pulled the plug.

Merger arbitrage resources

Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL) and the merger between Kraft (KRFT) and Berkshire Hathaway (BRK.A). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the tech sector should look at the S&P SPDR Tech ETF (XLK).


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