UPDATE, 2/18/14, 12:30 p.m. EST: This article’s twelfth paragraph has been updated to include information related to the fact that Robert Schumer is the brother of U.S. Senator Charles Schumer.
Robert Schumer, 55, cochair of the M&A practice at Paul, Weiss, Rifkind, Wharton & Garrison.
New York–based Time Warner Cable, the second-largest cable provider in the U.S.
Time Warner has agreed to be sold to rival Comcast, the nation’s largest cable provider, in a $45.2 billion all-stock transaction announced Thursday.
Under the terms of the transaction, Time Warner shareholders will receive 2.875 shares of Philadelphia-based Comcast stock for each Time Warner share and, ultimately, a 23 percent ownership stake in Comcast. The value of the stock changing hands is $45.2 billion, with the deal’s total value jumping to roughly $67 billion once assumed debt is added in. The deal values Time Warner at $158.82 per share—a 17.3 percent premium over the target’s Wednesday closing price and a 19.9 percent premium over a bid Charter Communications made for Time Warner last month.
Once the deal closes, Comcast plans to expand its share-buyback program by $10 billion in order to offset price dilution resulting from the issuance of new shares. The closing is expected to come by the end of the year, pending the approval of regulators and both companies’ shareholders.
As The Am Law Daily reported Thursday, Davis Polk & Wardwell and Willkie Farr & Gallagher are representing Comcast on the deal. Skadden, Arps, Slate, Meagher & Flom is also advising Time Warner.
THE BIG PICTURE
Time Warner reached agreement with Comcast almost exactly a month after it rejected a $132.50-per-share offer from Liberty Media–backed Charter Communications that Time Warner CEO Rob Marcus labeled “grossly inadequate.” Marcus said his company would only be willing to negotiate a deal with Charter it raised its offer closer to $160 per share. Comcast’s offer landed right in that range.
Charter’s interest in Time Warner emerged last summer, when the Stamford, Conn.–based company made the first of several preliminary offers for the target. Charter, the nation’s fourth-largest cable company, also considered teaming up with Comcast on a deal that would have seen them divvy up Time Warner’s assets. As recently as late January, according to Bloomberg, the companies were close to an agreement that would have given Comcast Time Warner’s subscribers in New York City, North Carolina and New England, and Charter everyone else.
Comcast, meanwhile, had been considering a solo bid for some time. Reuters reported last fall that the cable giant was seeking advice about the potential regulatory hurdles it would face if it made a play for complete control of Time Warner. That advice is likely to be valuable now, as regulators weigh whether a marriage between country’s two biggest cable providers will harm consumers.
The companies have already moved to assuage regulators’ concerns. Comcast announced it would shed 3 million of Time Warner’s 11 million subscribers in order to keep its total U.S. market share under 30 percent. Both companies also noted that their lack of geographic overlap proves the combination will not reduce consumer choice.
Regulators may be less concerned over the merger’s implications for the cable industry than they are with how its impact on the broadband Internet market. The Wall Street Journal notes that the proposed tie-up could ignite the debate over how involved the government should be in regulating broadband providers. The Federal Communications Commission could use the deal as a vehicle for promoting its proposed so-called Net neutrality rules—which were struck down in federal court last month—that would force broadband providers to treat all Internet traffic the same, rather than imposing fees on companies based on how much bandwidth they use.
Schumer is the brother of U.S. Senator Charles Schumer, a New York Democrat who sits on the senate’s antitrust subcommittee and whose office issued a press release Thursday praising Comcast executives for assuring him they would preserve hundreds of jobs at a Time Warner Cable call center in Buffalo. (Following the publication over the weekend of an article noting his personal ties to the deal, the senator said he would recuse himself from any congressional consideration of the matter in order to avoid any appearance of bias, according to Capital New York.)
Robert Schumer’s relationship with Time Warner Cable dates back to before that company’s 2008 split from former parent Time Warner Inc. and the latter’s 1989 creation via the merger between Time Inc. and Warner Communications. Schumer, who worked on both of those deals, was named an American Lawyer Dealmaker of the Year in 2006 for his representation of Time Warner Inc. on its $17.9 billion joint acquisition, with Comcast, of the assets of Adelphia Communications. In addition to advising Time Warner Cable on its split from its former parent, Schumer also advised the cable company on its $3 billion acquisition of Insight Communications three years later. (Schumer worked with fellow Paul Weiss M&A partner Ariel Deckelbaum, who also played an integral role on the Time Warner sale to Comast, on the Insight deal.)
Schumer has close ties to Time Warner Cable CEO Marcus, a former Paul Weiss attorney who also served as a regular Time Warner Inc. outside counsel for several years before joining the company’s in-house team in 1998. Before becoming CEO last year, Marcus was Time Warner Cable’s chief operating officer following a stint as head of mergers at Time Warner Inc. Schumer, who calls his former colleague and current client a “brilliant guy,” notes that Paul Weiss regularly advises Time Warner Cable on an array of legal issues, from M&A to IP, litigation and real estate matters.
Schumer has been leading Paul Weiss’ efforts on behalf of Time Warner in connection with a potential sale since last summer, when Charter made its first offer. Along the way, he says, the firm helped its client sort through a variety of options: “We’ve been involved from Day One and we obviously looked at all of our options to maximize shareholder value, so we considered a lot of different things, including Comcast,” Schumer says.
Though Charter’s decision to go public with its $132.50-per-share offer last month came as a bit of a surprise, Schumer says he and his team quickly advised their client to respond in a way that showed the company was taking the offer seriously—as is its fiduciary duty—even though the offer was far below what Time Warner ultimately hoped to attract. Schumer says the decision for Time Warner to name its price “was a very significant move” that countered Charter’s previous contention that the target’s executives and board members had been unwilling to negotiate with the bidder.
“Charter had been claiming that Time Warner management was intransigent and that was clearly not the case,” Schumer says. “At the right price, we said we would do a deal. We just had to have the right price to maximize value for shareholders.”
That the deal Time Warner eventually signed wound up falling just short of the $160-per-share threshold is a nonissue, Schumer adds, since it was the product of its own set of circumstances: “It’s a different buyer. It’s a different set of synergies. It’s a different transaction. The Comcast stock is very different from the Charter stock.”
As to what is likely to be an arduous path to regulatory approval, Schumer says his team pushed for a deal that anticipated the hurdles ahead. “We obviously had to be confident that we believed the deal could get done,” he says. “There were significant negotiations around the contract terms involving the regulatory approvals, but obviously we were very comfortable with it.”