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Speculation Swirls Over Mega Cable Merger's Real Estate Impact

Comcast Will Look To Shave $1.5 Billion in Overhead, Operating Expenses
February 17, 2014
While it may be way too way early in the process of speculating on the ‘specific’ commercial real estate impact of the proposed $45 billion mega-merger of cable giants Time Warner Cable into Comcast Corp., that hasn't stopped speculation in real estate circles over where Comcast, one of the biggest corporate spenders on CRE in the last couple of years, is going to be looking for cost-saving synergies between the two firms.

Among the likely candidates could be Time Warner Cable’s 133,214 square feet of headquarters space in Time Warner Center, an approximate 2.8 million-square-foot mixed use complex between West 58th and West 60th streets on Columbus Circle in New York City.


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The property was recently acquired by its original developer, The Related Cos., via a sale/leaseback transaction.

The Time Warner Cable lease term runs through December 2016 and includes three, five-year extension options. TWC was already expected to vacate that space at the end of its lease in December 2016 and move in with its parent firm Time Warner, which has made "an initial investment" in acquiring more than 1 million square feet of available commercial space in 30 Hudson Yards, an office development by Related and Oxford Properties Group approved for construction at the southwest corner of 10th Avenue and 33rd Street.

Time Warner Cable’s lease at Columbus Circle had a stated rental rate of $91.27 per square foot, on a gross basis. Eliminating that lease cost going forward after 2016 could save Comcast Corp. about $12.2 million a year.

But that is a mere pittance to the $1.5 billion in synergies Comcast expects to gain from the merger.

"Our analysis includes run-rate synergies of approximately $1.5 billion in operating expenses and approximately $400 million in capital expenditures. This approximates 10% of both Time Warner Cable’s operating expense base and its capital investment plan," said Michael J. Angelakis, vice chairman and CFO of Comcast. "Our target for realizing the full operating expense synergy impact is three years from closing, but we believe the realization can be frontloaded, with more than 50% realized in year one.”

Angelakis breaks those cost savings down into three categories: overhead, operating synergies, and capital expeditures. The overhead synergies will come from cutting out duplicate costs, fees and services. Among operating synergies, Comcast identified such categories as network operations, consolidating onto a single content delivery network and information management system, programming, marketing, supply chain, warehouses, technical operations, tools and training, and cost of goods.

“The programming aspect is a minority of our synergies,” Angelakis said. “A significant part of synergies are obviously at a sort of headquarters corporate side, which obviously retain, but the reality is that there would be some synergy leakage to the extent that there’s a divestiture.”

Comcast and Time Warner Cable approved a definitive agreement for Time Warner Cable to merge with Comcast. The agreement is a friendly, stock-for-stock transaction in which Comcast will acquire TWC for $45.2 billion in equity value. Under the deal, Comcast said it is prepared to divest systems totaling 3 million subscribers.

Comcast a Major Buyer of Corporate Property


Comcast has been one of the most active corporate buyers of property in each of the last three years.

Last month, Comcast announced plans to build a $1.2 billion skyscraper in Philadelphia, its second with developer Liberty Property Trust. The proposed 59-story, 1,121-foot tower would shoot nearly 150 feet higher than neighboring Comcast Center, the company's global headquarters, itself one of the tallest buildings in the country outside of New York City and Chicago.

In November 2013, Comcast purchased 10 Universal City Plaza in Universal City, CA, for $395 million, or about $485 per square foot, from a joint venture of Normandy Real Estate Partners and Morgan Stanley & Co. LLC.

Also last year, Comcast acquired General Electric’s entire 49% common equity stake in NBCUniversal for $16.7 billion and included a separate deal in which Comcast purchased the properties used by NBCUniversal at 30 Rockefeller Plaza and CNBC’s headquarters in Englewood Cliffs, NJ, from GE for $1.4 billion.


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