The Case For A Time Warner - NBC U Merger (TWX, GE)

So, what’s Jeff Bewkes going to do after the split-off of Time Warner Cable leaves him with a much-smaller, much-less-leveraged Time Warner (TWX)? Well, quite a few people are thinking he’ll buy NBC U (GE), or at least attempt a merger.

Fortune’s Richard Siklos lays out the arguments in favour:

  • If the split happened today, Time Warner’s market cap would shrink from $58 billion to $33 billion, making the onetime top dog in media look like a puny also-ran next to Disney (DIS) ($64 billion), News Corp. (NWS) ($50 billion), and Comcast (CMCSA) ($65 billion).
  • Time Warner and NBC U have incredibly complementary assets and are both focused on building their cable portfolios. They’re both bidding on Weather Channel, the biggest cable property in play.
  • There are big potential cost savings, including merging NBC News with CNN (and shuttering MSNBC) and combining NBC U’s cable networks with Turner Entertainment. The joint company could also sell NBC U’s smaller film studio and theme parks division.
  • The spinoff of the cable division would allow Time Warner to own a broadcast TV network (NBC).
  • GE’s Jeff Immelt put the conglomerate’s storied appliance unit on the block, so he’s looking to sell assets and nothing is sacred.

Of course none of his happens until after the spin-off is complete in Q4 and Time Warner sorts out what it’s going to do with AOL. And Time Warner will no doubt want to wait until its stock appreciates a bit. Nicholas Heymann at Sterne Agee thinks NBC U is worth about $33 billion, about the same as Time Warner’s content businesses today, even though Time Warner without cable has more than double NBC U’s operating earnings.


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