Time Warner Cable to Wed Liberty Media?

In case you haven't noticed, there are some serious consolidation efforts going around the cable and telecom industries. On one end, there are satellite TV providers chasing spectrum as if it's the gold rush of 1849. Now, it appears that Time Warner Cable (NYSE: TWC  ) may be courting Liberty Media (NASDAQ: LMCA  ) for a merger in an attempt to leverage Charter Communications' (NASDAQ: CHTR  )  highly coveted network. Let's determine who is the biggest winner in this latest media M&A dance, and where you should be putting your funds.

The players 
Charter Communications is not as big a name as, say, Comcast, but it is the fourth-largest cable provider in the United States, at least by market cap. The company was recently beleaguered and underwater financially (entering bankruptcy in 2009), but has since become a market darling, largely fueled by buyout speculation. John Malone's Liberty Media currently holds a 27% position in the company, with the ability to gain as much as 40%.

As a traditional cable operator in a heavily disrupted cable and telecom environment, Time Warner Cable has shown a successful adaptability since being spun off from its parent company. But with major telecoms and tech companies quickly building out high-speed networks that can package TV, Internet, and phone all in one, Time Warner Cable is on the hunt for an affordable way to catch up.

Finally, Liberty Media is a company ripe for merger, according to Malone. The company's strong balance sheet and attractive assets make it a small but valuable firm with a top-notch management team -- especially in the cable space. Prior to Liberty Media, John Malone owned Tele-Communications, which was sold to AT&T and was at one time the largest cable operator in the United States.

Last week, CNBC reported that TWC and Liberty Media had engaged in merger talks, with Charter as a center point of the discussion.

If it happens; if it doesn't happen
While last week's news had Time Warner up almost 10 points in trading, some analyst doubt on Tuesday brought the heat down a few degrees. The truth is, the merger would make sense for both parties, but would be most beneficial to Time Warner Cable.

The overall winner, however, is Liberty Media. The company is in great shape, with a majority stake in Sirius XM that it can easily make gains from. In addition, the company has a big stake in the world's largest concert promoter, Live Nation, and owns the Atlanta Braves.

Liberty shareholders will get a quick reward in the case of a merger with Time Warner Cable, but I believe capital appreciation and/or a buyout (and thus capital appreciation) will occur regardless of this deal. While Malone has polarized some with a difficult, shark-like business presence, he is without doubt one of the most talented capital allocators in the media industry. Liberty's CEO Greg Maffei is a smart manager as well, having successfully spun off premium cable TV company Starz and significantly rewarded shareholders along the way.

Whether the merger goes through or not, Liberty should be the focus of this trio.

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