The official announcement follows rumors and reports that the proposed deal faced increasing scrutiny from the Federal Communications Commission. Though the agency has taken its time approving other megamargers -- it waited 16 months to sign off on the satellite radio deal for SiriusXM -- the fact that the Comcast and Time Warner proposal would turn 450 days old in May spoke volumes.
Comcast walking away from the bid has been expected as a possible outcome for months, and it is not necessarily bad news for either company.
What happens to Time Warner Cable?
With the deal off the table, Time Warner Cable may find itself being courted by Charter Communications and billionaire owner John Malone. It is unclear whether the FCC would look any more favorably on that deal -- with the subscribers Charter acquired from Comcast and Time Warner as a precursor to their deal, it has become the second largest cable provider in the United States, according to Variety.
"When I work through what this business is worth regardless of a deal, I don't see tremendous downside," David Heger, an analyst for Edward Jones, told Bloomberg. "Partly that's based on the fundamentals of the business, but also Charter is very interested in Time Warner Cable and would potentially make another bid for them."
The news service cited analysts as saying that, because Time Warner earnings have been on the upswing, shareholder losses will be minimal and not long-term. "The stock could fall about 7% at most," according to the lowest estimate compiled by Bloomberg. "That compares with a potential gain of 11% if the deal still happens."
What happens to Comcast?
While Comcast has to be disappointed by the wasted time and resources, the cable giant will not take a huge financial blow. The Wall Street Journal laid out the case for this in a recent article:
Before talk of cable consolidation began during the latter half of 2013, Comcast traded at a multiple of roughly seven times earnings before interest, taxes, depreciation and amortization. If it returns to that level, its stock could theoretically fall to about $52 a share, according to UBS. That is about 11% below current levels.
But the S&P 500 has risen considerably since those predeal-talk days. That has brought multiples up along with it, suggesting Comcast won't fall nearly that far. The company's stand-alone financial performance has also been strong in recent quarters. Ebitda rose 7% in 2014 amid higher average revenue per user and a 7.5% rise in sales at NBCUniversal. Analysts see Ebitda climbing by 6% in 2015.
In addition, the deal has no breakup fee. Comcast likely had its fill of frustration and opportunity costs but no hits to their bottom line.
The real losers
With pressure from the FCC effectively scuttling this deal, that cannot be good news for the other major deal currently sitting in regulatory limbo. The potential $48.5 billion hookup between AT&T and DirecTV appears to be at risk now as well.
The DirecTV and AT&T merger has largely flown under the radar -- likely because the public does not feel as strongly about the participants -- but one merger being denied could lead to the other at least facing additional scrutiny.
It's all relative
The merger of Comcast and Time Warner Cable would have created a dominant company that controls cable subscribers, content, and a huge base of broadband customers. The deal made sense on paper, but the regulatory concerns were obvious from the beginning and the potential gains were never that significant.
That is good news for shareholders, as the end of the deal means both sides can walk away without major consequences. Comcast is now free to pursue smaller deals and Time Warner becomes an in-demand partner for smaller companies.
Call it a win for the American people who were leery of a deal which created such a large cable company and a tie, not a loss, for Comcast and Time Warner Cable.