Breakup Fee Drove Time Warner Cable Merger Negotiations

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Updated to include additional information throughout, including closing share prices.

NEW YORK (TheStreet) - Comcast chairman and CEO Brian Roberts wasn't willing to negotiate a takeover of Time Warner Cable unless the company agreed not to receive a payment in the event the combination was blocked by regulators. For that stipulation, Comcast eventually agreed to Time Warner Cable's asking price.

That disclosure, made in a proxy filing on Thursday, sheds new light on Comcast's emergence as a buyer of Time Warner Cable, as industry middle-weight Charter Communications pursued a highly-leveraged takeover campaign.

Comcast's Deal for Time Warner Cable is Good for America

On February 4, after rejecting a $132.50 offer put forward by Charter Communications, which consisted of $82.54 cash and the remaining consideration in stock, Time Warner Cable CEO Robert Marcus approached Comcast's Roberts about a merger of the two companies.

Comcast, which previously hadn't been interested in a full merger of the two companies, insisted that before negotiations start, Time Warner Cable agree not to ask for a reverse termination fee. Given the size of Comcast's eventual $45 billion all-stock acquisition of Time Warner Cable, such a fee could have run in the billions.

"Mr. Roberts emphasized that Comcast would only be willing to proceed with a transaction that included specific and objectively measurable undertakings with respect to regulatory matters and that did not require Comcast to pay a "reverse termination fee" in the event the transaction could not be completed due to an inability to obtain required regulatory approvals." Comcast said in its proxy statement released on Thursday.

"[If] TWC were willing to accept the regulatory framework proposed by Comcast, then the price would be significantly higher than the nominal value of $132.50 per TWC share that Charter was offering," the filing states.

Comcast's proxy indicates that Time Warner Cable CEO Marcus initially insisted on the protection of a reverse termination fee, something Comcast CEO Roberts was unwilling to concede.

"Mr. Marcus indicated that any potential transaction should include a "reverse termination fee" payable by Comcast in the event the transaction could not be completed due to an inability to obtain required regulatory approvals and Mr. Roberts reiterated that Comcast would not be willing to agree to any "reverse termination fee." The filing states.

Marcus went back to Time Warner Cable's board with negotiation offered by Comcast.

On Feb. 5, the board allowed Marcus to pursue a deal on Roberts's terms so long as Comcast gave Time Warner Cable a deal with acceptable financial and operational stipulations.

On Feb. 6, Marcus told Comcast CFO Michael Angelakis that Time Warner Cable would be open to discussing a deal on their terms so long as the company agreed to a stock-for-stock merger at a price of $160 per TWC share. Comcast's price was $150 a share, filings show, however, both companies agreed to continue discussions.