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Market Update

Comcast Pumps Up the Volume With Time Warner Deal

The deal will create a mammoth company, covering two thirds of the U.S., but shares are still overvalued, says Morningstar's Michael Hodel.

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 Comcast (CMCSA) (CMCSK) has announced plans to acquire  Time Warner Cable (TWC) in an all-stock transaction at a headline price of $159 per share. Comcast will issue 2.875 shares for each TWC share outstanding. While we will adjust our fair value estimates, we continue to believe that cable stocks, including Comcast and TWC, are generally overvalued. 

Based on our stand-alone fair value estimates, which put the relative value of TWC at about 2.25 Comcast shares, we believe TWC shareholders are getting the better of this deal. However, this transaction, if approved by regulators, will further widen and stabilize the moat of the combined firm and provide cost savings that should allow Comcast to recoup the value given to TWC shareholders.

Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.