Comcast corporation acquisition of time warner cable inc. analysis

Comcast Corporation Acquisition of Time Warner Cable Inc. Analysis

June 8, 2014

Authored by: Nikolay Zvezdin

1

Certain Information Regarding Forward Looking Statements

All statements included or incorporated by reference in this communication other than statements or characterizations of historic fact, are forward-looking statements. These

forward-looking statements are based on the document author’s current expectations, estimates and projections about the business and industry, and certain assumptions have

been made, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”,

“projects”, “positioning”, “create”, “may”, “will”, “should”, “would”, “continue”, “ongoing”, “upside”, “increases”, similar expressions, and variations or negatives of these words.

Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological, strategic and/or

regulatory factors, and other factors affecting the operations of Comcast Corporation and Time Warner Cable Inc.

These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause the actual results to differ materially

and adversely from those expressed in any forward-looking statement. Important risk factors that could contribute to such differences or otherwise affect the business, results of

operations and financial condition include: the ultimate outcome of any possible transaction between Comcast Corporation and Time Warner Cable Inc. including the possibility that

Comcast Corporation will not pursue a transaction with Time Warner Cable Inc., and if a transaction between Comcast Corporation and Time Warner Cable Inc. were to occur. The

forward-looking statements in this communication speak only as of the date of this presentation. We undertake no obligation to revise or update publicly any forward-looking

statement.

The materials herein may contain certain previously published third-party material. Unless otherwise indicated, consent of the author and publication has not been obtained to use

the material as proxy soliciting material.

This Presentation is for information purposes only and is not a prospectus, disclosure statement, product disclosure or other offering document under any law. This presentation is

not a financial product of investment advice nor a recommendation to acquire New Shares and has been prepared without taking into account the objectives, financial situation or

needs of individuals.

2

Purpose statement

The aim of the “Comcast Corporation Acquisition of Time Warner Cable Inc. Analysis” paper is not to disclose any real transaction related data and information, but instead to

illustrate the possible analysis techniques that can be (could be) used in order to complete the respective acquisition transaction. Therefore, the paper may not reflect the "reality" of

the research process that has occurred in investment banks and other advisory firms that were involved in the transaction between Time Warner Cable Inc. and Comcast

Corporation.

This paper will examine a number of analysis techniques, such as Precedent Transactions, DCF Analysis, LBO Analysis, Merger Consequences Analysis, and Regression Analysis, on the

example of real acquisition of Time Warner Cable Inc. by Comcast Corporation transaction.

Table of Contents:

Acquirer Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Target Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Recent Press Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Executive Transaction Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Target Company Input Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Target Precedent Transactions Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Sales Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Target’s Sales Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Acquirer’s Sales Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Target Discounted Cash Flow Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Target Leveraged Buyout Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Acquisition Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3

Acquirer Overview

Comcast Corporation (NASDAQ: CMCSA) is the largest mass media and communications company in the world by

revenue, with two primary businesses, Comcast Cable and NBCUniversal. It is the largest cable company and home

Internet service provider in the United States, and the third largest home telephone service provider in the US. Comcast

provides cable television, broadband Internet, telephone service and in some areas home security and home

automation to both residential and commercial customers in 40 states and the District of Columbia. Since January 2011,

having acquired NBCUniversal, Comcast is also a producer of film and television contents, operates cable channels,

national channels (NBC and Telemundo), the major film studio Universal Pictures, and Universal Parks & Resorts.

Target Overview

Time Warner Cable Inc. (NYSE: TWC) is among the largest providers of video, high-speed data and voice services in the US, connecting more than 15

million customers to entertainment, information and each other. Time Warner Cable Business Class offers data, video

and voice services to businesses of all sizes, cell tower backhaul services to wireless carriers and enterprise-class, cloud-

enabled hosting, managed applications and services. Time Warner Cable Media, the advertising arm of Time Warner

Cable, offers national, regional and local companies innovative advertising solutions. TWC generates the vast majority

of its revenue from subscription for services such as cable television, broadband Internet access, and VoIP. The

company offers "bundled" packages through which it sells customers all three services at once.

4

Recent Press Release

Time Warner Cable to Merge with Comcast Corporation to Create a World-Class Technology and Media Company

02/13/2014

Strategic Combination Will Accelerate Delivery of Comcast’s Technologically Advanced Products and Services to Time Warner Cable’s Customers

Transaction Creates Multiple Pro-Consumer and Pro-Competitive Benefits,

Including for Small and Medium-Sized Businesses PHILADELPHIA & NEW YORK--(February 13, 2014)--Comcast Corporation (Nasdaq:CMCSA)(Nasdaq:CMCSK) and Time Warner Cable (NYSE:TWC) today announced that their Boards of Directors have 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 100 percent of Time Warner Cable’s 284.9 million shares outstanding for shares of CMCSA amounting to approximately $45.2 billion in equity value. Each Time Warner Cable share will be exchanged for 2.875 shares of CMCSA, equal to Time Warner Cable shareholders owning approximately 23 percent of Comcast’s common stock, with a value to Time Warner Cable shareholders of approximately $158.82 per share based on the last closing price of Comcast shares. The transaction will generate approximately $1.5 billion in operating efficiencies and will be accretive to Comcast’s free cash flow per share while preserving balance sheet strength. The merger will also be tax free to Time Warner Cable shareholders. This transaction will create a leading technology and innovation company, differentiated by its ability to deliver ground-breaking products on a superior network while leveraging a national platform to create operating efficiencies and economies of scale. “The combination of Time Warner Cable and Comcast creates an exciting opportunity for our company, for our customers, and for our shareholders,” said Brian L. Roberts, Chairman and Chief Executive Officer, Comcast Corporation. “In addition to creating a world-class company, this is a compelling financial and strategic transaction for our shareholders. Also, it is our intention to expand our buyback program by an additional $10 billion at the close of the transaction. We believe there are meaningful operational efficiencies and the adjusted purchase multiple is approximately 6.7x Operating Cash Flow. This transaction will be accretive and will yield many synergies and benefits in the years ahead. Rob Marcus and his team have created a pure-play cable company that, combined with Comcast, has the foundation for future growth. We are looking forward to working with his team as we bring our companies together to deliver the most innovative products and services and a superior customer experience within the highly competitive and dynamic marketplace in which we operate.” “This combination creates a company that delivers maximum value for our shareholders, enormous opportunities for our employees and a superior experience for our customers,” said Robert D. Marcus, Chairman and CEO of Time Warner Cable. “Comcast and Time Warner Cable have been the leaders in all of the industry’s most important innovations of the last 25 years and this merger will accelerate the pace of that innovation. Brian Roberts, Neil Smit, Michael Angelakis and the Comcast management team have built an industry-leading platform and innovative products and services, and we’re excited to be part of delivering all of the possibilities of cable’s superior broadband networks to more American consumers.”

5

The new cable company, which will be led by President and CEO Neil Smit, will generate multiple pro-consumer and pro-competitive benefits, including an accelerated deployment of existing and new innovative products and services for millions of customers. Comcast’s subscribers today have access to the most comprehensive video experience, including the cloud-based X1 Entertainment Operating System, plus 50,000 video on demand choices on television, 300,000 plus streaming choices on XfinityTV.com, Xfinity TV mobile apps that offer 35 live streaming channels plus the ability to download to watch offline later, and the newly launched X1 cloud DVR. Comcast is also a technology leader in broadband and has increased Internet speeds 12 times in the past 12 years across its entire footprint. Time Warner Cable owns cable systems located in key geographic areas, including New York City, Southern California, Texas, the Carolinas, Ohio, and Wisconsin. Time Warner Cable will combine its unique products and services with Comcast’s, including StartOver, which allows customers to restart a live program in progress to the beginning, and LookBack, which allows customers to watch programs up to three days after they air live, all without a DVR. Time Warner Cable also has been a leader in the deployment of community Wi-Fi, and will combine its more than 30,000 hotspots, primarily in Los Angeles and New York City, and its in-home management system, IntelligentHome, with Comcast’s offerings. Through this merger, more American consumers will benefit from technological innovations, including a superior video experience, higher broadband speeds, and the fastest in-home Wi-Fi. The transaction also will generate significant cost savings and other efficiencies. American businesses will benefit from a broader platform, and the Company will be better able to offer advanced services like high-performance point-to-point and multi-point Ethernet services and cloud-based managed services to enterprises. Additionally, the transaction will combine complementary advertising platforms and channels and allow Comcast to offer broader and more valuable packages to national advertisers. Through the merger, Comcast will acquire Time Warner Cable’s approximately 11 million managed subscribers. In order to reduce competitive concerns, Comcast is prepared to divest systems serving approximately 3 million managed subscribers. As such, Comcast will, through the acquisition and management of Time Warner Cable systems, net approximately 8 million managed subscribers in this transaction. This will bring Comcast’s managed subscriber total to approximately 30 million. Following the transaction, Comcast’s share of managed subscribers will remain below 30 percent of the total number of MVPD subscribers in the U.S. and will be essentially equivalent to Comcast Cable’s subscriber share after its completion of both the 2002 AT&T Broadband transaction and the 2006 Adelphia transaction. The companies said the merger agreement between Comcast and Time Warner Cable is subject to shareholder approval at both companies and regulatory review and other customary conditions and is expected to close by the end of 2014. J.P. Morgan, Paul J. Taubman, and Barclays Plc acted as financial advisors to Comcast and Davis Polk & Wardwell LLP and Willkie Farr & Gallagher LLP are its legal advisors. Morgan Stanley, Allen & Company, Citigroup and Centerview Partners are financial advisors to Time Warner Cable and its Board of Directors, and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Skadden, Arps, Slate, Meagher & Flom LLP are legal advisors.

Link to the official press release (February 13, 2014)

http://files.shareholder.com/downloads/CMCSA/3224406923x0x725712/d6966758-803f-435e-b8c6-4287041136e4/Time%20Warner%20Cable%20to%20Merge%20with%20Comcast%20Corporation.pdf

6

Executive Transaction Summary The proposed acquisition of Time Warner Cable by Comcast Corporation, first was publicly announced on February 13, 2014.

The acquisition is to take the form of a stock-for-stock estimated at the time of announcement to be worth about $45.2 billion. Comcast Corporation began the regulatory review

process of the deal by filing a public interest statement at the Federal Communications Commission on April 8, 2014, and is currently in the process of obtaining permission from both

the FCC and US Department of Justice to complete the acquisition.

• Comcast Corporation to acquire Time Warner Cable Inc. for $45.2 billion a business with pro-forma FY14 sales of $23,035 million and pro-forma FY14 EBITDA of $8,738.5 million

Acquisition

• Strategic fit with Comcast Corporation

• Increase the market share

• Accessing to premier markets, including Los Angeles, New York and Dallas

• Bring technologically superior video and high speed data platforms to TWC customers

• Deployment and development of advanced services

• Benefits for enterprise customers

• Benefiting from potential synergies by eliminating the duplicative costs

• Over $400 million of synergies in capital expenditures

• Run-rate synergies of $1.5 billion in operating expenditures

Strategic Rationale

• Comcast will acquire 100% of the outstanding Time Warner Cable shares for Comcast Corporation shares in a share-for-share exchange equal to ownership of approximately 23% of Comcast Corporation

Funding

7

Target Company Input Data

In order to start the acquisition analysis, the input data of target (Time Warner Cable Inc.) is needed.

The target financial information such as annual and quarterly financial data was obtained from official 10-K, 10-Q forms. The input data is as follows:

Company Information

Company Name Time Warner Cable Inc.

Ticker TWC

Stock Exchange NYSE

Fiscal Year Ending Dec. 31

Moody’s Corporate Rating Baa2

S&P Corporate Rating BBB

Predicted Beta 0.87

Marginal Tax Rate 31.9%

Prior Current

Stub Stub LTM

2011A 2012A 2013A 30/09/2012 30/09/2013 14/06/2014

Sales 19,675.00 21,386.00 22,120.00 15,901.00 16,543.00 22,762.00

COGS (incl. D&A) 9,138.00- 9,942.00- 10,342.00- 7,377.00- 7,764.00- 10,729.00-

Gross Profit 10,537.00 11,444.00 11,778.00 8,524.00 8,779.00 12,033.00

SG&A 3,311.00- 3,620.00- 3,798.00- 2,694.00- 2,825.00- 3,929.00-

Other Expense/(Income) 3,246.00- 2,882.00- 3,389.00- 2,061.00- 2,537.00- 3,865.00-

EBIT 3,980.00 4,942.00 4,591.00 3,769.00 3,417.00 4,239.00

Interest Expense 1,518.00- 1,606.00- 1,552.00- 1,204.00- 1,175.00- 1,523.00-

Pre-tax Income 2,462.00 3,336.00 3,039.00 2,565.00 2,242.00 2,716.00

Income Taxes 795.00- 1,177.00- 1,085.00- 920.00- 828.00- 993.00-

Noncontrolling Interest 2.00- 4.00- - 3.00- - 3.00

Preffered Dividends NA NA NA NA NA NA

Net Income 1,665.00 2,155.00 1,954.00 1,642.00 1,414.00 1,726.00

Effective Tax Rate

Weighted Avg. Diluted Shares 335.3 312.4 287.6 314.8 293.8 266.6

Diluted EPS 4.97 6.90 6.70 5.22 4.81 6.29

Fiscal Year Ending December 31,

Reported Income Statement

13/06/2014 144.14

98.60%

14/06/2013 146.19

14/06/2013 84.57

2.60

285.89

41,208.04

23,261.00

3.00

876.00

63,596.04

Current Price

Plus: Total Debt

52-week High Price

Dividend Per Share (MRQ)

Fully Diluted Shares Outstanding

Less: Cash and Cash Equivalents

Enterprise Value

Selected Market Data

Plus: Noncontrolling Interest

Plus: Preffered Stock

52-week Low Price

Equity Value

% of 52-week High

LTM NFY NFY+1 NFY+2

13/06/2014 2014E 2015E 2016E

EV/Sales 2.79 1.50 1.04 0.82

Metric 22,762.00 42,396.67 60,983.61 78,021.64

EV/EBITDA 8.45 8.45 3.17 2.62

Metric 7,530.00 15,088.00 20,055.67 24,267.36

EV/EBIT 15.00 15.00 5.02 3.93

Metric 4,239.00 8,799.42 12,657.13 16,193.37

P/E 22.92 22.92 19.24 17.66

Metric 6.29 6.29 7.49 8.16

FCF Yield 0.05 0.05 0.06 0.07

Metric 2,136.00 2,136.00 2,581.75 2,781.44

Trading Multiples

8

Basic Shares Outstanding 281.89

Plus: Shares from in-the-Money Options 91.00

Less: Shares Repurchased 87.00

Net New Shares from Options 285.89

Plus: Shares from Convertible Securities -

Fully Diluted Shares Outstanding 285.89

Calculation of Fully Diluted Shares Outstanding

14%

25%

4%

7%

Return on Invested Capital

Return on Equity

Return on Assets

Implied Annual Dividend Per Share

LTM Return on Investment Ratios

Reported Gross Profit 10,537.00 11,444.00 11,778.00 8,524.00 8,779.00 12,033.00

Non-recurring Items in COGS -

Adj. Gross Profit 10,537.00 11,444.00 11,778.00 8,524.00 8,779.00 12,033.00

% margin 53.56% 53.51% 53.2% 53.6% 53.07% 52.86%

Reported EBIT 3,980.00 4,942.00 4,591.00 3,769.00 3,417.00 4,239.00

Non-recurring Items in COGS - - - - - -

Other non-recurring Items in COGS - - - - - -

Adjusted EBIT 3,980.00 4,942.00 4,591.00 3,769.00 3,417.00 4,239.00

% margin 20.23% 23.11% 20.8% 23.7% 20.66% 18.62%

Depreciation & Amortization 3,027.00 3,264.00 3,281.00 2,456.00 2,466.00 3,291.00

Adjusted EBITDA 7,007.00 8,206.00 7,872.00 6,225.00 5,883.00 7,530.00

% margin 35.61% 38.37% 35.6% 39.1% 35.56% 33.08%

Reported Net Income 1,665.00 2,155.00 1,954.00 1,642.00 1,414.00 1,726.00

Non-recurring Items in COGS - - - - - -

Other non-recurring Items in COGS - - - - - -

Non-operating Non-rec. Items - - - - - -

Tax Adjustment - - - 920.00 828.00 993.00

Adjusted Net Income 1,665.00 2,155.00 1,954.00 2,562.00 2,242.00 2,719.00

% margin 8.46% 10.08% 16.11% 13.55% 11.95%

Adjusted Diluted EPS 4.97 6.90 6.79 8.14 7.63 10.20

Adjusted Income Statement

Cash from Operations 5,688.00 5,525.00 5,753.00 4,115.00 4,154.00 5,792.00

Capital Expenditures 2,937.00- 3,095.00- 3,476.00- 2,191.00- 2,371.00- 3,656.00-

% sales 14.93% 14.47% 15.7% 13.8% 14.33% 16.06%

Free Cash Flow 2,751.00 2,430.00 2,277.00 1,924.00 1,783.00 2,136.00

% margin 14.0% 11.4% 10.3% 12.1% 10.8% 9.4%

FCF/Share 9.76 8.62 8.08 6.83 6.33 7.58

Depreciation & Amortization 3,027.00 3,264.00 3,281.00 2,456.00 2,466.00 3,291.00

% sales 15.39% 15.26% 14.83% 15.45% 14.91% 14.46%

Cash Flow Statement Data

2013A 30/09/2013

525.00 876.00

954.00 892.00

- -

665.00 888.00

2,144.00 2,656.00

15,056.00 14,627.00

29,760.00 29,471.00

1,313.00 677.00

48,273.00 47,431.00

565.00 468.00

1,057.00 1,089.00

3,604.00 3,407.00

5,226.00 4,964.00

23,285.00 23,261.00

12,815.00 12,540.00

41,326.00 40,765.00

4.00 4.00

- -

6,943.00 6,662.00

48,273.00 47,431.00

- -

Inventories

Cash and Cash Equivalents

Accounts Receivable

Balance Sheet Data

Property, Plant and Equipment, net

Goodwill and Intangible Assets

Other Assets

Total Assets

Prepaids and Other Current Assets

Total Current Assets

Total Debt

Other Long-Term Liabilities

Total Liabilities

Accounts Payable

Accrued Liabilities

Other Current Liabilities

Total Current Liabilities

Noncontrolling Interest

Preferred Stock

Shareholders' Equity

Total Liabilities and Equity

Balance Check

0.78

3.09

4.64

4.94

7.34

2.78

EBITDA/Interest Expense

(EBITDA-capex)/Interest Expense

EBIT/Interest Expense

LTM Credit Statistics

Debt/Total Capitalization

Total Debt/EBITDA

Net Debt/EBITDA

The detailed excel file with target company input data can be obtained from the link in Appendix 1: Target Company Input Excel File

.

9

Target Precedent Transactions Analysis

Precedent transactions analysis is an important tool that employs a multiple-based approach in order to derive an implied valuation range for a given

company (target). It is premised on multiples paid for comparable companies prior to the acquisition transaction.

The universe of comparable acquisitions that were completed by the Time Warner Cable Inc. is comprised of the acquisitions that took place during the period of 2011-2013. During

the respective period Time Warner Cable Inc. has acquired four companies: NaviSite; NewWave Communications; Insight Communications Co. Inc.; DukeNet Communications.

Due to the reason that the NewWave Communications, Insight Communications Co. Inc., DukeNet Communications are private companies, it is not possible to obtain detailed

financial information regarding the transactions.

LTM

Date Transaction Purchase Equity Enterprise LTM LTM LTM EBITDA

Announced Acquirer Target Type Consideration Value Value Sales EBITDA EBIT Margin

21/04/2011 Time Warner Cable Inc. NaviSite Public/Public Cash 230.18 304.44 2.32 6.46 0.10 36%

13/06/2011 Time Warner Cable Inc. NewWave Communications Public/Private Cash NA 260.00 NA NA NA NA

14/08/2011 Time Warner Cable Inc. Insight Communications Co. Inc. Public/Private Cash NA 3,000.00 NA NA NA NA

07/10/2013 Time Warner Cable Inc. DukeNet Communications LLC Public/Private Cash NA 600.00 NA NA NA NA

Enterprise Value /

Date Transaction Purchase

Announced Acquirer Target Type Consideration

21/04/2011 Time Warner Cable Inc. NaviSite Public/Public Cash

13/06/2011 Time Warner Cable Inc. NewWave Communications Public/Private Cash

14/08/2011 Time Warner Cable Inc. Insight Communications Co. Inc. Public/Private Cash

07/10/2013 Time Warner Cable Inc. DukeNet Communications LLC Public/Private Cash

Equity Value /

LTM

Net Income 1 7 30

12.43 0.2% 0.7% 51.9%

NA NA NA NA

NA NA NA NA

NA NA NA NA

Days Prior to Unaffected

Premiums Paid

The detailed excel file with target company precedent transactions analysis input and output data can be obtained from the links in Appendix 2: TWC Precedent Transactions Input

Excel File, and Appendix 3: TWC Precedent Transactions Analysis Output Excel File.

10

Sales Regression Analysis

In order to predict acquirer’s and target’s pro-forma future sales performance, the regression analysis was used.

The regression analysis has the form of: +

Where: = dependent variable (predicted sales)

parameters of the regression model

independent variables (years)

random variable

The analysis of possible number of independent parameters in the model presented that:

Where: coefficient of determination adjusted for the number of independent variables

Therefore the decision is to use 2 independent variables for the regression models.

In addition to that, the 99% confidence intervals for the sales should be built. The 99% confidence intervals for both target and acquirer have the form of: ̂

√

Where: ̂ forecasted annual sales

the t value providing an area of /2 in the upper tail of a t distribution with n - 3 degrees of freedom

s = sample standard deviation of forecasted errors

n = sample size

11

Target’s Sales Regression Analysis

In order to predict target’s future sales, the regression analysis was used.

The regression model for target’s sales has the form of: ̂

The regression model’s specifications for the target company are as follows:

The evidences of the regression model’s validity are as follows: the average forecast error = 0.00 and the error values scatter randomly above and below the trend line on a scatter

diagram.

$-2,000

$-1,500

$-1,000

$-500

$-

$500

$1,000

$1,500

$2,000

2000 2002 2004 2006 2008 2010 2012 2014

FOR

ECA

ST E

RR

OR

, $ M

ILLI

ON

ERROR PATTERN

and X = number of years since 2001 (i.e., X = 1

for 2002, 2 for 2003, 3 for 2004, etc.)

943.55

2,696.32

76.69-

10,211,810.45

0.00-

963.51

6.59

97.63%

2.37%

97.10%

98.81%

420,793,684.55

10,211,810.45

431,005,495.00

Intercept =

Model Specifications:

where Y = annual sales, $ million

Y = 943.55+ 2,696.32*X-76.69*X^2

Sum of Squares due to Regression =

Sum of Squares due to Error =

Total Sum of Squares =

Parametr X^2 =

Parametr X =

Average Forecast Error =

t-Value =

Standard Deviation of Forecast Errors =

Coefficient of Determination (R^2) =

Coefficient of Nondetermination (1-R^2) =

Adjusted Coefficient of Determination =

Correlation Coefficient =

Model's standard error of estimate =

12

Based on the regression model, target’s sales were forecasted for the period of 2014-2020. In addition to that the 99.99% confidence intervals were built. The predicted sales of Time

Warner Cable Inc. and 99% confidence intervals are illustrated above.

The detailed excel file with target company regression analysis can be obtained from the link in Appendix 4: TWC Regression Analysis Excel File.

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

DATA VALUES, QUADRATIC REGRESSION LINE, MINIMUM AND MAXIMUM CONFIDENCE LIMITS

AN

NU

AL

SALE

S, $

MIL

LIO

N

Minimum Maximum

$ million $ million

1,729 5,397

4,195 7,863

6,508 10,176

8,668 12,336

10,674 14,342

12,527 16,195

14,226 17,894

15,772 19,440

17,164 20,832

18,404 22,072

19,489 23,157

20,422 24,090

21,201 24,869

21,826 25,494

22,299 25,967

22,618 26,286

22,783 26,451

22,795 26,463

22,654 26,322

99.99% Confidence IntervalsForecast

Fiscal Error,

Year X X^2 Data Forecast $ million

2002 1 1 4,923$ 3,563$ 1,360$

2003 2 4 5,351$ 6,029$ -678 $

2004 3 9 7,861$ 8,342$ -481 $

2005 4 16 8,812$ 10,502$ -1,690 $

2006 5 25 11,767$ 12,508$ -741 $

2007 6 36 15,955$ 14,361$ 1,594$

2008 7 49 17,200$ 16,060$ 1,140$

2009 8 64 17,868$ 17,606$ 262$

2010 9 81 18,868$ 18,998$ -130 $

2011 10 100 19,675$ 20,238$ -563 $

2012 11 121 21,386$ 21,323$ 63$

2013 12 144 22,120$ 22,256$ -136 $

2014 13 169 23,035$

2015 14 196 23,660$

2016 15 225 24,133$

2017 16 256 24,452$

2018 17 289 24,617$

2019 18 324 24,629$

2020 19 361 24,488$

Annual Sales,

$ million

13

Acquirer’s Sales Regression Analysis

In order to predict acquirer’s future sales, the regression analysis was used.

The regression model for acquirer’s sales has the form of: ̂

The regression model’s specifications for the acquiring company are as follows:

The evidences of the regression model’s validity are as follows: the average forecast error = 0.00 and the error values scatter randomly above and below the trend line on a scatter

diagram.

$-8,000

$-6,000

$-4,000

$-2,000

$-

$2,000

$4,000

$6,000

$8,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

FOR

ECA

ST E

RR

OR

, $ M

ILLI

ON

ERROR PATTERN

and X = number of years since 2003 (i.e., X = 1

for 2004, 2 for 2005, 3 for 2005, etc.)

18,061.38

1,057.13

386.39

99,148,098.10

0.00

3,319.10

11.21

96.04%

3.96%

94.90%

98.00%

2,402,745,740.30

99,148,098.10

2,501,893,838.40

Sum of Squares due to Error =

Total Sum of Squares =

Parametr X^2 =

Parametr X =

Average Forecast Error =

t-Value =

Standard Deviation of Forecast Errors =

Coefficient of Determination (R^2) =

Coefficient of Nondetermination (1-R^2) =

Adjusted Coefficient of Determination =

Correlation Coefficient =

Model's standard error of estimate =

Sum of Squares due to Regression =

Intercept =

Model Specifications:

where Y = annual sales, $ million

Y = 18,061.38+ 1,057.13*X+386.39*X^2

14

Based on the regression model, target’s sales were forecasted for the period of 2014-2020. In addition to that the 99.99% confidence intervals were built. The predicted sales of

Comcast Corporation and 99% confidence intervals are as follows:

The detailed excel file with acquiring company regression analysis can be obtained from the link in Appendix 5: CMCSA Regression Analysis Excel File.

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

DATA VALUES, QUADRATIC REGRESSION LINE, MINIMUM AND MAXIMUM CONFIDENCE LIMITS

AN

NU

AL

SALE

S, $

MIL

LIO

N

Minimum Maximum

$ million $ million

7,734 31,276

9,950 33,492

12,939 36,481

16,701 40,243

21,236 44,778

26,543 50,085

32,623 56,165

39,476 63,018

47,102 70,644

55,501 79,043

64,672 88,214

74,616 98,158

85,333 108,875

96,823 120,365

109,085 132,627

122,120 145,662

135,928 159,470

99.999% Confidence IntervalsForecast

Fiscal Error,

Year X X^2 Data Forecast $ million

2004 1 1 19,221$ 19,505$ -284 $

2005 2 4 21,075$ 21,721$ -646 $

2006 3 9 24,966$ 24,710$ 256$

2007 4 16 31,060$ 28,472$ 2,588$

2008 5 25 34,432$ 33,007$ 1,425$

2009 6 36 35,756$ 38,314$ -2,558 $

2010 7 49 37,937$ 44,394$ -6,457 $

2011 8 64 55,842$ 51,247$ 4,595$

2012 9 81 62,570$ 58,873$ 3,697$

2013 10 100 64,657$ 67,272$ -2,615 $

2014 11 121 76,443$

2015 12 144 86,387$

2016 13 169 97,104$

2017 14 196 108,594$

2018 15 225 120,856$

2019 16 256 133,891$

2020 17 289 147,699$

Annual Sales,

$ million

15

Target Discounted Cash Flow Analysis

As the discounted cash flow (DCF) analysis is the fundamental valuation methodology, that premises on the principle that the value of the company

can be derived from the present value of its expected free cash flow. A company’s projected free cash flow (FCF) is derived from a variety of assumptions and judgments about its

expected financial performance, including sales growth rates, profit margins, capital expenditures, and new working capital (NWC) requirements.

The valuation implied for a target by a DCF is also known as its intrinsic value, as opposed to its market value, which is the value ascribed by the market at a given point in time. As a

result, when performing a comprehensive valuation, a DCF serves as an important alternative to market-based valuation techniques such as precedent transactions analysis, which

can be destroyed by a number of factors, including market anomalies. Therefore, a DCF plays an important role as a check on the prevailing market valuation for a publicly traded

company.

In a DCF, a company’s FCF is typically projected for a period of five years. However, the projected period may be longer depending on the company’s sector, stage of development,

and the underlying predictability of its financial performance.

The predicted FCF and terminal value are discounted to the present at the target’s weighted average cost of capital (WACC), which is a discount rate commensurate with its business

and financial risks. The present value of the FCF and terminal value are summed to determine an enterprise value, which serves as the basis for the DCF valuation. The WACC and

terminal value assumptions have a significant impact of the output, with even slight variations producing meaningful differences in valuation. As a result, a DCF output is viewed in

terms of a valuation range based on a range of key input assumptions, rather than as a single variable. Therefore, the impact of these assumptions on valuation is tested using

sensitivity analysis.

The calculations of the WACC, terminal value, and the DCF analysis can be found on the tables bellow.

The values for the expected amortization for the period of 2013-2017 were taken from the 10-K report of Time Warner Cable Inc. for the year of 2012.

The sales expected growth rates were obtained thought the regression analysis, explained before.

16

CAGR LTM CAGR

2011A 2012A 2013A ('13-'11) 12/06/2014 2014 2015 2016 2017 2018 2019 ('19-'14)

Sales 19,675.0 21,386.0 22,120.0 6.0% 22,028.0 22,894.3 23,516.1 23,985.5 24,302.4 24,466.9 24,478.9 1.3%

% growth NA 8.7% 3.4% NA 3.5% 2.7% 2.0% 1.3% 0.7% 0.0%

Cost of Goods Sold 8,925.0 9,268.0 10,057.0 10,329.0 10,409.0 11,052.6 11,273.2 11,422.1 11,499.4 11,505.1

% sales 45.4% 43.3% 45.5% 46.9% 45.5% 47.0% 47.0% 47.0% 47.0% 47.0%

Gross Profit 10,750.0 12,118.0 12,063.0 5.9% 11,699.0 12,485.2 12,463.5 12,712.3 12,880.3 12,967.5 12,973.8 0.8%

% margin 54.6% 56.7% 54.5% 53.1% 54.5% 53.0% 53.0% 53.0% 53.0% 53.0%

Selling, Deneral & Administrative 3,125.0 3,311.0 3,620.0 3,751.0 3,746.7 3,848.5 3,925.3 3,977.2 4,004.1 4,006.0

% sales 15.9% 15.5% 16.4% 17.0% 16.4% 16.4% 16.4% 16.4% 16.4% 16.4%

EBITDA 7,625.0 8,807.0 8,443.0 5.2% 7,948.0 8,738.5 8,615.1 8,787.0 8,903.1 8,963.4 8,967.8 0.5%

% margin 38.8% 41.2% 38.2% 36.1% 38.2% 36.6% 36.6% 36.6% 36.6% 36.6%

Depreciation 2,961.0 2,994.0 3,154.0 3,148.0 3,264.4 3,353.1 3,501.9 3,548.2 3,547.7 3,549.4

% sales 15.0% 14.0% 14.3% 14.3% 14.3% 14.3% 14.6% 14.6% 14.5% 14.5%

Amortization 168.0 33.0 110.0 126.0 124.0 119.0 115.0 111.0 107.0 73.4 (1)

% sales 0.9% 0.2% 0.5% 0.6% 0.5% 0.5% 0.5% 0.5% 0.4% 0.3%

EBIT 4,496.0 5,780.0 5,179.0 7.3% 4,674.0 5,350.1 5,143.0 5,170.1 5,244.0 5,308.7 5,344.9 0.0%

% margin 22.9% 27.0% 23.4% 21.2% 23.4% 21.9% 21.6% 21.6% 21.7% 21.8%

3-year

Average

Capex 2,930.0 2,937.0 3,095.0 1,708.0 3,203.3 3,290.3 3,356.0 3,400.4 3,423.4 3,425.1

% sales 14.9% 13.7% 14.0% 14.2% 7.8% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%

Balance Sheet DataCurrent Assets

Accounts Receivable 718.0 767.0 883.0 NA

DSO 13.32 13.09 14.57 13.7 NA

Inventory - - - -

DIH - - - - -

Prepaid Expences and Other 425.0 187.0 223.0 NA

% sales 2.2% 0.9% 1.0% 1.3% NA

Current Liabilities

Accounts Payable 529.0 545.0 653.0 NA

DPO 21.63 21.46 23.70 22.27 NA

Accrued Liabilities 765.0 807.0 872.0 NA

% sales 3.9% 3.8% 3.9% 3.9% NA

Other Current Liabilities 1,792.0 4,018.0 3,800.0 NA

% sales 9.1% 18.8% 17.2% 15.0% NA

Historical Period Projection Period

Operating Data

($ in millions, fiscal year ending December 31)

Time Warner Cable Inc. Summary Historical and Projected Operating and Balance Sheet Data

17

The assumptions for the working capital projections are as follows: Days sales outstanding, Prepaids and other current assets (% of sales), Days payable outstanding, Accrued

liabilities (% of sales), Other current liabilities (% of sales) = constant value that equal to the last value obtained from the official financial statements.

2011 2012 2013 2014 2015 2016 2017 2018 2019

Sales 19,675.0 21,386.0 22,120.0 22,894.3 23,516.1 23,985.5 24,302.4 24,466.9 24,478.9

Cost of Goods Sold 8,925.0 9,268.0 10,057.0 10,409.0 11,052.6 11,273.2 11,422.1 11,499.4 11,505.1

Current Assets

Accounts Receivable 718.0 767.0 883.0 913.9 938.7 957.5 970.1 976.7 977.2

Inventories - - - - - - - - -

Prepaid Expenses and Other 425.0 187.0 223.0 230.8 237.1 241.8 245.0 246.7 246.8

Total Current Assets 1,143.0 954.0 1,106.0 1,144.7 1,175.8 1,199.3 1,215.1 1,223.3 1,223.9

Current Liabilities

Accounts Payable 529.0 545.0 653.0 675.9 717.6 732.0 741.6 746.7 747.0

Accrued Liabilities 765.0 807.0 872.0 902.5 927.0 945.5 958.0 964.5 965.0

Other Current Liabilities 1,792.0 4,018.0 3,800.0 3,933.0 4,039.8 4,120.5 4,174.9 4,203.2 4,205.2

Total Current Liabilities 3,086.0 5,370.0 5,325.0 5,511.4 5,684.5 5,798.0 5,874.6 5,914.3 5,917.3

Net Working Capital - 1,943.0 - 4,416.0 - 4,219.0 - 4,366.7 - 4,508.7 - 4,598.7 - 4,659.5 - 4,691.0 - 4,693.3

% sales -9.9% -20.6% -19.1% -19.1% -19.2% -19.2% -19.2% -19.2% -19.2%

(Increase)/Decrease in NWC 2,473.00 197.00- 147.68 142.03 89.99 60.76 31.54 2.31

Assumptions

Current Assets

Days Sales Outstanding 13.32 13.09 14.57 14.57 14.57 14.57 14.57 14.57 14.57

Prepaids and other CA (% of sales) 2.2% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Current Liabilities

Days Payable Outstanding 21.63 21.46 23.70 23.70 23.70 23.70 23.70 23.70 23.70

Accrued Liabilities (% of sales) 3.9% 3.8% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9%

Other Current Liabilities (% of sales) 9.1% 18.8% 17.2% 17.2% 17.2% 17.2% 17.2% 17.2% 17.2%



Working Capital Projections

Time Warner Cable Inc.

18

The WACC was calculated as follows:

WACC = After-tax Cost of Debt * % of Debt in the Capital Structure + Cost of Equity * % of Equity in the Capital Structure

( )

Where: = cost of debt

= cost of equity

T = marginal tax rate

D = market value of debt

E = market value of equity

The cost of debt of the Time Warner Cable Inc. was obtained from the official 10-K form.

In order to estimate the cost of equity for the target company, the CAPM equation was used.

( )

Where: = risk-free rate

= levered beta

= expected return on the market

= market risk premium

SP = size premium

The risk-free rate was taken as of January 30, 2014 yield of the 20-year Treasury bond. The historical period of 1963-2012 was used for the calculation of the market risk premium.

Due to the reason that Time Warner Cable Inc. is mature company, there is no need in calculating size premium.

19

In order to calculate levered beta, the following equation was used:

(

)

Where: = levered beta

= unlevered beta

D/E = debt to equity ratio (market values)

T = marginal tax rate

Average unlevered beta was taken as 0.92 as Washington State Department of Revenue, reports for the 2013 Assessment year, Telecommunications Sector.

Bellow the full output DCF analysis can be found.

Target Capital Structure

Debt-to-Total Capitalization 78.6%

Equity-to-Total Capitalization 21.4%

Cost of Debt

Cost-of-Debt 5.89%

Tax Rate 31.9%

After-tax Cost of Debt 4.0%

Cost of Equity

Risk-free Rate 3.4%

Market Risk Premium 4.5%

Levered Beta 2.92

Size Premium 0.0%

Cost of Equity 16.6%

WACC 6.70%

WACC Calculation

6.7% 3.9% 4.9% 5.9% 6.9% 7.9%

58.6% 8.4% 8.8% 9.2% 9.6% 10.0%

68.6% 7.0% 7.5% 7.9% 8.4% 8.9%

78.6% 7.0% 7.5% 7.9% 8.4% 8.9%

88.6% 4.2% 4.8% 5.4% 6.0% 6.6%

98.6% 2.8% 3.5% 4.2% 4.9% 5.5%

Pre-tax Cost of Debt

De

bt-

to-T

ota

l

Ca

pit

ali

za

tio

n

WACC Sensitivity Analysis

Mean Target Target

Unlevered Debt / Marginal Relevered

Beta Equity Tax Rate Beta

Relevered Beta 0.92 366.5% 31.9% 2.92

Relevered Beta

20

Operating Scenario Base1

Y CAGR CAGR

2011 2012 2013 ('13-'11) 2014 2015 2016 2017 2018 2019 ('19-'14)

19,675.0 21,386.0 22,120.0 6.0% 22,894.3 23,516.1 23,985.5 24,302.4 24,466.9 24,478.9 1.0%

NA 8.7% 3.4% 3.5% 2.7% 2.0% 1.3% 0.7% 0.0%

6,818.0 7,096.0 7,709.0 6.3% 8,738.5 8,615.1 8,787.0 8,903.1 8,963.4 8,967.8 1.0%

34.7% 33.2% 34.9% 38.2% 36.6% 36.6% 36.6% 36.6% 36.6%

3,129.0 3,027.0 3,264.0 3,388.4 3,472.1 3,616.9 3,659.2 3,654.7 3,622.9

3,689.0 4,069.0 4,445.0 9.8% 5,350.1 5,143.0 5,170.1 5,244.0 5,308.7 5,344.9 1.0%

18.7% 19.0% 20.1% 23.4% 21.9% 21.6% 21.6% 21.7% 21.3%

Taxes (1) 883.0 795.0 1,177.0 7,303.3 1,640.6 1,649.3 1,672.8 1,693.5 1,705.0

2,806.0 3,274.0 3,268.0 7.9% - 1,953.1 3,502.4 3,520.9 3,571.1 3,615.2 3,639.9 1.0%

3,129.0 3,027.0 3,264.0 3,388.4 3,472.1 3,616.9 3,659.2 3,654.7 3,622.9

- 2,930.0 - 2,937.0 - 3,095.0 - 3,203.3 - 3,290.3 - 3,356.0 - 3,400.4 - 3,423.4 - 3,425.1

142.0 90.0 60.8 31.5 2.3

3,826.1 3,871.7 3,890.7 3,878.1 3,840.0

6.70%

0.50 1.50 2.50 3.50 4.50

1.00 0.94 0.88 0.82 0.77

3,826.1 3,628.7 3,417.6 3,192.6 2,962.9

17,027.9 Enterprise Value 78,635.0 Terminal Year Free Cash Flow (2018E) 3,840.0

Less: Total Debt 23,261.0 WACC 6.7%

Less: Preferred Stock - Terminal Value 257.2

8,967.8 Less: Noncontrolling Interest 4.0

9.5 Plus: Cash and Cash Equivalents 876.0 Implied Perpetuity Growth Rate 2.0%

85,194.0

0.7 Implied Equity Value 56,246.0

61,607.2 Enterprise Value 78,635.0

78.3% Fully Diluted Shares Outstanding 312.4 LTM 2/02/2014 EBITDA 7,948.0

78,635.0 Implied Equity Value 180.0 Implied EV/EBITDA 9.9

78,635.0 8.5 9.0 9.5 10.0 10.5 2.0% 8.5 9.0 9.5 10.0 10.5

4.7% 78,233.52 81,797.39 85,361.26 88,925.13 92,489.00 4.7% -0.4% -0.2% 0.1% 0.3% 0.5%

5.7% 75,105.26 78,503.71 81,902.15 85,300.60 88,699.05 5.7% 0.5% 0.8% 1.0% 1.2% 1.4%

6.7% 72,143.76 75,385.91 78,628.06 81,870.21 85,112.37 6.7% 1.4% 1.7% 2.0% 2.2% 2.4%

7.7% 69,338.57 72,432.97 75,527.37 78,621.78 81,716.18 7.7% 2.3% 2.6% 2.9% 3.1% 3.3%

8.7% 66,679.98 69,634.64 72,589.30 75,543.96 78,498.62 8.7% 3.3% 3.6% 3.8% 4.1% 4.3%


Discounted Cash Flow Analysis


WA

CC

% of Enterprise Value

Enterprise Value

Implied Equity Value and Share Price Implied Perpetuity Growth Rate

Implied EV/EBITDA

Terminal Year EBOTDA (2018E)

Exit Multiple

Terminal Value

Discount Factor

Present Value of Terminal Value

WA

CC

Exit Multiple

Implied Perpetuity Growth RateEnterprise ValueExit Multiple


Enterprise ValueCumulative Present Value of FCF

Terminal Value

Present Value of Free Cash Flow

Less: Inc./(Dec.) in Net Working Capital

Unlevered Free Cash Flow

WACC

Discount Period

Discount Factor

Less: Capital Expenditures

Plus: Depreciation & Amortization

EBIAT

% margin

EBIT

Depreciation & Amortization

Operating Scenario

% margin

EBITDA

% growth

Sales

Mid-Year Convention

21

Sensitivity Analysis

2.0% 8.5 9.0 9.5 10.0 10.5

4.7% -0.4% -0.2% 0.1% 0.3% 0.5%

5.7% 0.5% 0.8% 1.0% 1.2% 1.4%

6.7% 1.4% 1.7% 2.0% 2.2% 2.4%

7.7% 2.3% 2.6% 2.9% 3.1% 3.3%

8.7% 3.3% 3.6% 3.8% 4.1% 4.3%

WA

CC

Exit Multiple

Implied Perpetuity Growth Rate

110,840.6 8.5 9.0 9.5 10.0 10.5

4.7% 110,036.8 116,353.2 116,585.4 128,986.0 135,302.5

5.7% 104,538.9 110,562.2 110,828.4 122,608.6 128,631.8

6.7% 99,347.0 105,093.8 56,246.0 116,574.6 122,320.8

7.7% 94,409.2 99,893.6 105,377.9 110,862.3 116,346.7

8.7% 89,741.6 94,978.3 100,215.0 105,451.7 110,688.4

Exit Multiple

WA

CC

Implied Equity Value

16.76 8.5 9.0 9.5 10.0 10.5

4.7% 16.66 17.46 18.25 19.05 19.84

5.7% 15.97 16.73 17.49 18.24 19.00

6.7% 15.32 16.04 9.89 17.48 18.21

7.7% 14.70 15.39 16.08 16.77 17.46

8.7% 14.11 14.77 15.43 16.08 16.74

Exit Multiple

Implied Enterprise Value / LTM EBITDA

WA

CC

The detailed excel file with target DCF analysis can be obtained from the link in Appendix 5: CMCSA Regression Analysis Excel File.

22

Target Leveraged Buyout Analysis

Leveraged buyout (LBO) is the acquisition of a target company using debt to finance a large portion of the purchase price. The remaining portion of the

purchase price is funded with an equity contribution by a financial sponsor or the acquiring company.

Due to the reason that the transaction that is used in this paper as the example did not involve debt financing (it was 100% stock-for-stock transaction), the LBO did not occur.

Therefore, the LBO analysis was not involved in Comcast Corporation-Time Warner Cable Inc. acquisition transaction valuation, however for the illustration purposes the LBO analysis

is demonstrated in this paper, as if the debt financing was required for the transaction completion.

The typical participants of the LBO transaction are illustrated on the graph below.

LBO Participants

Financial sponsors Private Equity

Firms, Merchant

banks, Hedge Funds, Venture Capital Funds, Growth Capital

Funds

Investment banks

Banks and institutional

lenders

Bond investors

Target’s management

23

Generally, there are some steadfast rules and characteristics of a strong LBO candidate. These characteristics are aiming to give a general idea of the candidate. The characteristics of

a LBO candidate as follow: strong cash flow generation, leading market position, growth opportunities, efficiency enhancement opportunities, low capital expenditures requirements,

strong asset base, and proven management team.

Before starting analysing the LBO of Time Warner Cable Inc. in more details, we check whenever it satisfies the LBO candidate’s

characteristics.

As Time Warner Cable Inc. is among the leading cable companies in the US, it has a strong established customer base, strong brand

name, and long-term sales contracts. All of the respective factors serve to increase the predictability of future cash flows. In addition

to that, the regression analysis that was illustrated before proves in a more mathematical, i.e. accurate way the assumption of

strong future cash flow generation.

In addition to that, as stated in Comcast Cable’s investor presentation of February 13, 2014, Time Warner Cable Inc. has more than

fifteen thousand subscribers in New York, Los Angeles, Dallas-Ft. Worth, Cleveland-Akron, Raleigh-Durham, Charlotte, San Diego,

Kansas City, Columbus, OH, Milwaukee, Cincinnati, San Antonio, Austin, TX, Greensboro-H. Point-W. Salem, and Louisville.

That proves that Time Warner Cable Inc. has leading and defensible market positions.

Due to the reason, that there are few areas where Time Warner Cable Inc. does not operate yet, we may assume that there are

strong growth opportunities. Moreover, there is a big international cable market, which is considered as big growth opportunity as

well.

Time Warner Cable’s efficiency enhancement opportunities include such as selling, general and administrative expenses, non-

administrative labour, and other expenses not directly associated with the delivery of company’s services.

The picture is taken from Time Warner Cable Inc.

presentation “Charter’s Proposal is Grossly Inadequate”

of January 15, 2014

24

Financial statements of Time Warner Cable Inc. indicate that it has average capital expenditures of 15.81% of sales. However the average Capex-to-Sales ratio for the telecom

industry is 2.35% as indicated by Aswath Damodaran (teacher of corporate finance and valuation at the Stern School of Business at New York University) on his web-page “Capital

Expenditures by Sector” where he has used the data from S&P Capital IQ, Bloomberg, Federal Reserve, and made the analysis on January 2014. Therefore we can state that Time

Warner Cable has high capital expenditures requirements relative to telecom industry, and that provides it with addition future efficiency enhancement opportunity.

Time Warner Cable’s asset base cannot be considered to be strong, due to the reason that majority of its assets are illiquid. Only 4.44% of the company’s assets are considered as

high quality, because most of the firm’s assets are long-term assets, which cannot be converted into cash easily. Therefore, in the event of bankruptcy (and liquidation) company will

not have enough sufficient assets as collateral against a loan benefits lenders, by decreasing the likelihood of principal recovery.

As the management team is critical in LBO scenario given the need to operate under a highly leveraged capital structure with ambitious performance targets, the management team

of Time Warner Cable Inc. can be considerate as very effective, due to the reasons that the team could sustain company’s operations during the world financial crisis, and the current

management team has previous experience of operation under the low capital expenditures opportunities when Time Warner Cable was acquiring NaviSite, NewWave

Communications, Insight Communications Co. Inc., and DukeNet Communications.

To sum up, Time Warner Cable Inc. has almost all characteristics of strong LBO candidate, except for capex requirements, and liquid asset base. Therefore the company could be a

satisfactory LBO target.

Checklist for strong LBO candidate characteristics:

✓ • Strong cash flow generation

✓ • Leading and defencible market positions

✓ • Growth opportunities

✓ • Efficiency enhancement opportunities

× • Low capex requirements

× • Strong asset base

✓ • Proven management team

25

The following LBO analysis is based on five possible operation scenarios.

The scenarios are as follows:

1st Scenario: Base – neutral scenario, based on regression analysis

2nd Scenario: Sponsor – positive scenario

3rd Scenario: Management – the most positive scenario

4th Scenario: Downside 1 – pessimistic scenario

5th Scenario: Downside 2 – the worst scenario

There are several sources of LBO financing available for the transaction. The sources are as follows:

First Lien Secured Debt

Second Lien Secured Debt

Senior Unsecured Debt

Senior Subordinated Debt

Subordinated Debt

Preferred Stock

Common Stock

Bank Debt

High Yield Bonds

Mezzanine Debt

Equity Contribution

Low

High

Risk

26

Summary of Selected Financing Key Terms

Bank Debt High Yield Bonds Mezzanine Debt

Senior Seniority Junior

Secured Security Unsecured

Low Cost of Capital High

Low Coupon High

More Prepayability Call Protection Negotiated

More Restrictive Covenants Less Restrictive

Low Flexibility High

Shorter Maturity Longer

The LBO analysis is based on five different deal financing structures.

The financing structures are as follows:

1st Structure: 65% Equity Contribution and 35% Senior Notes

2nd Structure: 65% Equity Contribution and 35% Term Loan B

3rd Structure: 65% Equity Contribution, 17.31% Senior Notes, 17.31% Senior Subordinated Notes

4th Structure: 65% Equity contribution, 17.31% Term Loan B, 10.39% Senior Notes, 6.92% Senior Subordinated Notes

5th Structure: Status Quo

The excel file with different financing options as well as possible effect on the company can be obtained from the link in Appendix 7: TWC Leveraged Buyout Analysis Excel File.

However, this paper will demonstrate the analysis of the 1st financing structure: 65% Equity Contribution and 35% Senior Notes, because such structure, as believed by the author of

the paper, provides the best financing structure for the LBO transaction, as it includes 35% of Senior Notes it provides more flexibility for the company, lower cost of capital and

coupons, than the Bank Debt would provide the company with, meanwhile it is more secured than mezzanine debt.

27

Purchase Price

Public / Public Target 1

Offer Price Per Share 158.8

Fully Diluted Shares Outstanding 284.9

Equity Purchase Price 45,247.8

Plus: Total Debt 23,285.0

Plus: Preferred Stock -

Plus: Noncontrolling Interest -

Less: Cash and Cash Equivalents 2,503.0

Enterprise Value 66,029.8

Assumptions Page (Financing Structure):

Amortization of Financing FeesYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Term 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Revolving Credit Facility Size 6 - - - - - - - - - -

Term Loan A 7 - - - - - - - - - -

Term Loan B 7 - - - - - - - - - -

Term Loan C 7 - - - - - - - - - -

2nd Lien 8 - - - - - - - - - -

Senior Notes 8 74.9 74.9 74.9 74.9 74.9 74.9 74.9 74.9 - -

Senior Subordinated Notes 10 - - - - - - - - - -

Senior Bridge Facility 1 - - - - - - - - - -

Senior Subordinated Bridge Facility 2 - - - - - - - - - -

Other Financing Fees & Expenses 8 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 - -

Annual Amortization 78.6 78.6 78.6 78.6 78.6 78.6 78.6 78.6 - -

Financing Structures

1 2 3 4 5

Sources of Funds Structure 1 Structure 2 Structure 3 Structure 4 Status Quo

Revolving Credit Facility Size - - - - -

Revolving Credit Facility Draw - - - - -

Term Loan A - - - - -

Term Loan B - 23,958.9 - 11,979.4 -

Term Loan C - - - - -

2nd Lien - - - - -

Senior Notes 23,958.9 - 11,979.4 7,187.7 -

Senior Subordinated Notes - - 11,979.4 4,791.8 -

Equity Contribution 45,247.8 45,247.8 45,247.8 45,247.8 -

Rollover Equity - - - - -

Cash on Hand - - - - -

- - - - -

Total Sources of Funds 69,206.7 69,206.7 69,206.7 69,206.7 -

Uses of Funds

Equity Purchase Price 45,247.8 45,247.8 45,247.8 45,247.8 -

Repay Existing Bank Debt 23,285.0 23,285.0 23,285.0 23,285.0 -

Tender / Call Premiums 15.0 15.0 15.0 15.0 -

Financing Fees 628.9 628.9 628.9 628.9 -

Other Fees and Expenses 29.9 29.9 29.9 29.9 -

- - - - - -

- - - - - -

Total Uses of Funds 69,206.7 69,206.7 69,206.7 69,206.7 -

Structure

Financing Fees

Structure 1 Size (%) ($)

Revolving Credit Facility Size - 1.500% -

Term Loan A - 1.500% -

Term Loan B - 1.500% -

Term Loan C - 1.500% -

2nd Lien - 2.500% -

Senior Notes 23,958.9 2.500% 599.0

Senior Subordinated Notes - 2.500% -

Senior Bridge Facility - 1.000% -

Senior Subordinated Bridge Facility - 1.000% -

Other Financing Fees & Expenses 29.9

Total Financing Fees 628.9

Fees

28

The detailed page with assumptions about company’s Income Statement, Cash Flow Statement, and Balance Sheet can be found on the page “Assumptions 1” of the Appendix 7: TWC Leveraged Buyout Analysis Excel File.


Income Statement

LTM Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2011 2012 2013 13/06/2014 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Sales 19,675.0 21,368.0 22,120.0 22,028.0 22,938.4 23,561.5 24,031.7 24,349.3 24,514.1 24,526.1 24,415.6 24,275.5 24,014.9 23,637.0 23,146.9

% growth NA 8.6% 3.5% NA 3.7% 2.7% 2.0% 1.3% 0.7% 0.0% -0.5% -0.6% -1.1% -1.6% -2.1%

Cost of Goods Sold 9,138.0 9,942.0 10,342.0 10,329.0 13,772.0 11,073.9 11,294.9 11,444.2 11,521.6 11,527.3 11,475.3 11,409.5 11,287.0 11,109.4 10,879.0

Gross Profit 10,537.0 11,426.0 11,778.0 11,699.0 9,166.4 12,487.6 12,736.8 12,905.1 12,992.5 12,998.9 12,940.3 12,866.0 12,727.9 12,527.6 12,267.8

% margin 53.6% 53.5% 53.2% 53.1% 40.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0%

Selling, General & Administrative 3,311.0 3,620.0 3,798.0 3,751.0 5,001.3 3,981.9 4,061.4 4,115.0 4,142.9 4,144.9 4,126.2 4,102.6 4,058.5 3,994.7 3,911.8

% sales 16.8% 16.9% 17.2% 17.0% 21.8% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9%

Other Expense / (Income) 130.0 115.0 119.0 84.0 112.0 235.6 240.3 243.5 245.1 245.3 244.2 242.8 240.1 236.4 231.5

EBITDA 7,096.0 7,691.0 7,861.0 7,864.0 4,053.1 8,270.1 8,435.1 8,546.6 8,604.4 8,608.7 8,569.9 8,520.7 8,429.2 8,296.6 8,124.6

% margin 36.1% 36.0% 35.5% 35.7% 17.7% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1%

Depreciation 2,994.0 3,154.0 3,155.0 3,148.0 4,197.3 3,298.6 3,364.4 3,408.9 3,432.0 3,433.7 3,418.2 3,398.6 3,362.1 3,309.2 3,240.6

Amortization 33.0 110.0 126.0 126.0 168.0 141.4 144.2 146.1 147.1 147.2 146.5 145.7 144.1 141.8 138.9

EBIT 4,069.0 4,427.0 4,580.0 4,590.0 - 312.2 4,830.1 4,926.5 4,991.6 5,025.4 5,027.9 5,005.2 4,976.5 4,923.1 4,845.6 4,745.1

% margin 20.7% 20.7% 20.7% 20.8% -1.4% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%

Interest Expense

Revolving Credit Facility - - - - - - - - - -

Term Loan A - - - - - - - - - -

Term Loan B - - - - - - - - - -

Term Loan C - - - - - - - - - -

Existing Term Loan - - - - - - - - - -

2nd Lien - - - - - - - - - -

Senior Notes 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5

Senior Subordinated Notes - - - - - - - - - -

Commitment Fee on Unused Revolver - - - - - - - - - -

Administrative Agent Fee - - - - - - - - - -

Cash Interest Expense 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5

Amortization of Deferred Financing Fees 78.6 78.6 78.6 78.6 78.6 78.6 78.6 78.6 - -

Total Interest Expense 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,036.5 2,036.5

Interest Income - 46.7 93.7 140.6 187.2 233.2 278.7 323.3 366.9 409.2

Net Interest Expense 2,115.1 2,161.8 2,208.8 2,255.7 2,302.3 2,348.3 2,393.8 2,438.4 2,403.4 2,445.7

Earnings Before Taxes 2,715.0 2,764.7 2,782.8 2,769.7 2,725.5 2,656.9 2,582.7 2,484.7 2,442.1 2,299.4

Income Tax Expense 866.1 881.9 887.7 883.5 869.4 847.5 823.9 792.6 779.0 733.5

Net Income 1,848.9 1,882.8 1,895.1 1,886.1 1,856.1 1,809.3 1,758.8 1,692.1 1,663.1 1,565.9

% margin 7.8% 7.8% 7.8% 7.7% 7.6% 7.4% 7.2% 7.0% 7.0% 6.8%

Income Statement Assumptions

Sales (% YoY growth) NA 8.6% 3.5% NA 3.7% 2.7% 2.0% 1.3% 0.7% 0.0% -0.5% -0.6% -1.1% -1.6% -2.1%

Cost of Goods Sold (% margin) 46.4% 46.5% 46.8% 46.9% 60.0% 47.0% 47.0% 47.0% 47.0% 47.0% 47.0% 47.0% 47.0% 47.0% 47.0%

SG&A (% of sales) 16.8% 16.9% 17.2% 17.0% 21.8% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9% 16.9%

Other Expense / (Income) (% of sales) -0.7% -0.5% -0.5% -0.4% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Depreciation (% of sales) 15.2% 14.8% 14.3% 14.3% 14.3% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%

Amortization (% of sales) 0.2% 0.5% 0.6% 0.6% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Interest Income 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Tax Rate 31.9% 31.9% 31.9% 31.9% 31.9% 31.9% 31.9% 31.9% 31.9% 31.9%


29


Balance Sheet

Opening Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2014 + - 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Cash and Cash Equivalents 525.0 - 525.0 - 9,335.2 18,732.3 28,123.6 37,441.6 46,641.5 55,739.2 64,653.9 73,388.7 81,842.7

Accounts Receivable 954.0 954.0 981.2 1,000.8 1,014.0 1,020.9 1,021.4 1,016.8 1,010.9 1,000.1 984.3 963.9

Prepaids and Other Current Assets 665.0 665.0 706.8 721.0 730.5 735.4 735.8 732.5 728.3 720.4 709.1 694.4

Total Current Assets 2,144.0 2,144.0 1,688.0 11,056.9 20,476.8 29,879.9 39,198.7 48,390.7 57,478.4 66,374.5 75,082.1 83,501.0

Property, Plant and Equipment, net 15,056.0 15,056.0 11,757.4 8,392.9 4,984.0 1,552.1 - 1,881.6 - 5,299.8 - 8,698.3 - 12,060.4 - 15,369.6 - 18,610.2

Goodwill 3,196.0 40,177.8 - 3,196.0 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8 40,177.8

Intangible Assets 26,564.0 26,564.0 26,422.6 26,278.4 26,132.3 25,985.3 25,838.1 25,691.6 25,546.0 25,401.9 25,260.0 25,121.2

Other Assets 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0 1,313.0

Deferred Financing Fees - 628.9 628.9 550.3 471.7 393.1 314.5 235.8 157.2 78.6 - - -

Total Assets 48,273.0 85,883.7 81,909.2 87,690.8 93,477.0 99,222.5 104,881.9 110,430.6 115,895.5 121,206.7 126,463.4 131,502.9

Accounts Payable 565.0 565.0 455.1 464.2 470.3 473.5 473.7 471.6 468.9 463.8 456.6 447.1

Acrued Liabilities 1,057.0 1,057.0 1,083.8 1,105.5 1,120.1 1,127.6 1,128.2 1,123.1 1,116.7 1,104.7 1,087.3 1,064.8

Other Current Liabilities 3,604.0 3,604.0 3,769.8 3,845.1 3,895.9 3,922.3 3,924.2 3,906.5 3,884.1 3,842.4 3,781.9 3,703.5

Total Current Liabilities 5,226.0 5,226.0 5,308.8 5,414.7 5,486.3 5,523.4 5,526.1 5,501.2 5,469.6 5,410.9 5,325.8 5,215.3

Revolving Credit Facility - - - - - - - - - - - - -

Term Loan A - - - - - - - - - - - - -

Term Loan B - - - - - - - - - - - - -

Term Loan C - - - - - - - - - - - - -

Existing Term Loan 23,285.0 - 23,285.0 - - - - - - - - - - -

2nd Lien - - - - - - - - - - - - -

Senior Notes - 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9

Existing Senior Notes 5,790.0 - 5,790.0 - - - - - - - - - - -

Senior Subordinated Notes - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Debt - - - - - - - - - - - -

Deferred Income Taxes 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0 12,098.0

Other Long-Term Liabilities - - - - - - - - - - - -

Total Liabilities 46,399.0 41,282.9 41,365.6 41,471.6 41,543.2 41,580.3 41,583.0 41,558.1 41,526.5 41,467.8 41,382.7 41,272.2

Noncontrolling Interest - - - - - - - - - - - -

Shareholders' Equity 1,874.0 45,202.9 - 1,874.0 44,600.9 40,543.5 46,219.2 51,933.9 57,642.2 63,298.9 68,872.5 74,368.9 79,738.9 85,080.7 90,230.6

Total Shareholders' Equity 1,874.0 44,600.9 40,543.5 46,219.2 51,933.9 57,642.2 63,298.9 68,872.5 74,368.9 79,738.9 85,080.7 90,230.6

Total Liabilities and Equity 48,273.0 85,883.7 81,909.2 87,690.8 93,477.0 99,222.5 104,881.9 110,430.6 115,895.5 121,206.7 126,463.4 131,502.9

Balance Check - - - - - - - - - - - -

Net Workign Capital - 3,607.0 - 3,607.0 - 3,620.7 - 3,693.0 - 3,741.8 - 3,767.1 - 3,769.0 - 3,752.0 - 3,730.5 - 3,690.4 - 3,632.3 - 3,557.0

(Increase) / Decrease in Net Working Capital 13.7 72.3 48.8 25.3 1.9 - 17.0 - 21.5 - 40.1 - 58.1 - 75.3

Balance Sheet Assumptions

Current Assets

Days Sales Outstanding (DSO) 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2

Prepaid and Other Current Assets (% of sales) 2.9% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Current Liabilities

Days Payable Outstanding (DPO) 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0

Accrued Liabilities (% of sales) 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6%

Other Current Liabilities (% of sales) 15.7% 15.7% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0%

Projection Period

Adjustments

30


Cash Flow Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Operating Activities

Net Income 1,848.9 1,882.8 1,895.1 1,886.1 1,856.1 1,809.3 1,758.8 1,692.1 1,663.1 1,565.9

Plus: Depreciation 3,298.6 3,364.4 3,408.9 3,432.0 3,433.7 3,418.2 3,398.6 3,362.1 3,309.2 3,240.6

Plus: Amortization 141.4 144.2 146.1 147.1 147.2 146.5 145.7 144.1 141.8 138.9

Plus: Amortization of Financing fees - - - - - - - - - -

Changes in Working Capital Items

(Inc.) / Dec. in Accounts Receivable - 27.2 - 19.6 - 13.2 - 6.9 - 0.5 4.6 5.8 10.9 15.7 20.4

(Inc.) / Dec. in Inventories - - - - - - - - - -

(Inc.) / Dec. in Prepaid and Other Current Assets - 41.8 - 14.1 - 9.5 - 4.9 - 0.4 3.3 4.2 7.8 11.3 14.7

(Inc.) / Dec. in Accounts Payable - 109.9 9.1 6.1 3.2 0.2 - 2.1 - 2.7 - 5.0 - 7.3 - 9.5

(Inc.) / Dec. in Accrued Liabilities 26.8 21.6 14.6 7.6 0.6 - 5.1 - 6.4 - 12.0 - 17.4 - 22.5

(Inc.) / Dec. in Other Current Liabilities 165.8 75.2 50.8 26.4 1.9 - 17.7 - 22.4 - 41.7 - 60.5 - 78.4

(Inc.) / Dec. in Net Working Capital 13.7 72.3 48.8 25.3 1.9 - 17.0 - 21.5 - 40.1 - 58.1 - 75.3

Cash Flow from Operating Activities 5,316.3 5,535.9 5,547.7 5,515.8 5,440.6 5,340.0 5,260.0 5,118.1 4,998.0 4,794.7

Investing Activities

Capital Expenditures - 3,724.9 - 3,799.2 - 3,849.4 - 3,875.5 - 3,877.4 - 3,859.9 - 3,837.8 - 3,796.6 - 3,736.8 - 3,659.3

Other Investing Activities - - - - - - - - - -

Cash Flow from Investing Activities - 3,724.9 - 3,799.2 - 3,849.4 - 3,875.5 - 3,877.4 - 3,859.9 - 3,837.8 - 3,796.6 - 3,736.8 - 3,659.3

Financing Activities


Term Loan A - - - - - - - - - -

Term Loan B - - - - - - - - - -

Term Loan C - - - - - - - - - -


2nd Lien - - - - - - - - - -

Senior Notes - - - - - - - - - -


Other Debt - - - - - - - - - -

Dividends - - - - - - - - - -

Equity Issuance / (Repurchase) - - - - - - - - - -

Cash Flow from Financing Activities - - - - - - - - - -

Excess Cash for the Period 9,335.2 9,397.1 9,391.3 9,318.0 9,199.9 9,097.7 8,914.7 8,734.8 8,454.0

Beginning Cash Balance - 9,335.2 18,732.3 28,123.6 37,441.6 46,641.5 55,739.2 64,653.9 73,388.7

Ending Cash Balance 9,335.2 18,732.3 28,123.6 37,441.6 46,641.5 55,739.2 64,653.9 73,388.7 81,842.7

Cash Flow Statement AssumptionsCapital Expenditures (% of sales) 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%

Projection Period

31


Debt Schedule

Pro Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Forward LIBOR Curve 0.35% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%

Cash Flow from Operating Activities 5,316.3 5,535.9 5,547.7 5,515.8 5,440.6 5,340.0 5,260.0 5,118.1 4,998.0 4,794.7

Cash Flow from Investing Activities 3,724.9 3,799.2 3,849.4 3,875.5 3,877.4 3,859.9 3,837.8 3,796.6 3,736.8 3,659.3

Cash Available for Debt Repayment 9,041.2 1,736.7 1,698.3 1,640.4 1,563.2 1,480.1 1,422.2 1,321.6 1,261.1 1,135.4

Total Mandatory Payments MinCash - - - - - - - - - -

Cash from Balance Sheet 20% - 1,867.0 3,746.5 5,624.7 7,488.3 9,328.3 11,147.8 12,930.8 14,677.7 16,368.5

Cash Available for Optional Debt Repayment 9,041.2 3,603.8 5,444.7 7,265.1 9,051.5 10,808.4 12,570.1 14,252.4 15,938.9 17,503.9

Revolving Credit FacilitySize -

Spread 4.500%

LIBOR Floor 1.250%

Term 6

Commitment Fee on Unused Portion 2.25%

Beginning Balance - - - - - - - - - -

Mandatory Payments - - - - - - - - - -

Optional Repayments - - - - - - - - - -

Ending Balance - - - - - - - - - -

Interest Rate 5.75% 5.75% 5.75% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25%

Interest Expense - - - - - - - - - -

Commitment Fee - - - - - - - - - -

Administrative Agent Fee - - - - - - - - - -

Term Loan A FacilitySize -

Spread 4.500%

LIBOR Floor 1.250%

Term 7.0

Repayment Schedule 1.0% Per Annum, Bullet at Maturity

Beginning Balance - - - - - - - - - -

Mandatory Payments - - - - - - - - - -

Optional Repayments - - - - - - - - - -

Ending Balance - - - - - - - - - -

Interest Rate 5.75% 5.75% 5.75% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25%

Interest Expense - - - - - - - - - -

Projection Period

Senior Notes

Size 23,958.9

Coupon 8.500%

Term 8 years

Beginning Balance 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89

Repayment - - - - - - - - - -

Ending Balance 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89

Interest Expense 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51 2,036.51

32


Return Analysis

Pro Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Entry EBITDA Multiple 8.92

Initial Equity Investment 45,247.8

EBITDA 8,270.1 8,435.1 8,546.6 8,604.4 8,608.7 8,569.9 8,520.7 8,429.2 8,296.6 8,124.6

Exit EBITDA Multiple 8.92

Enterprise Value at Exit 73,763.0 75,235.3 76,229.4 76,745.4 76,783.1 76,437.0 75,998.5 75,182.6 73,999.5 72,465.1

Less: Net Debt


Term Loan A - - - - - - - - - -

Term Loan B - - - - - - - - - -

Term Loan C - - - - - - - - - -


2nd Lien - - - - - - - - - -

Senior Notes 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9


Other Debt - - - - - - - - - -

Total Debt 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9

Less: Cash and Cash Equivalents - 9,335.2 18,732.3 28,123.6 37,441.6 46,641.5 55,739.2 64,653.9 73,388.7 81,842.7

Net Debt 23,958.9 14,623.7 5,226.6 - 4,164.7 - 13,482.7 - 22,682.6 - 31,780.4 - 40,695.0 - 49,429.8 - 57,883.8

Equity Value at Exit 49,804.1 60,611.6 81,456.0 72,580.7 63,300.4 53,754.4 44,218.2 34,487.6 24,569.7 14,581.2

Cash Return 1.1 1.3 1.8 1.6 1.4 1.2 1.0 0.8 0.5 0.3

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Initial Equity Investment - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8 - 45,247.8

Equity Proceeds 49,804.1 - - - - - - - - -

60,611.6 - - - - - - - -

81,456.0 - - - - - - -

72,580.7 - - - - - -

63,300.4 - - - - -

53,754.4 - - - -

44,218.2 - - -

34,487.6 - -

24,569.7 -

14,581.2

IRR 10.1% 15.7% 21.6% 12.5% 6.9% 2.9% -0.3% -3.3% -6.6% -10.7%

Projection Period

6.9% 7.92 8.42 8.92 9.42 9.92 6.9% 2016 2017 2018 2019 2020

7.92 3.9% 3.9% 3.9% 3.9% 3.9% 7.92 3.9% 3.9% 3.9% 3.9% 3.9%

8.42 5.4% 5.4% 5.4% 5.4% 5.4% 8.42 5.4% 5.4% 5.4% 5.4% 5.4%

8.92 6.9% 6.9% 6.9% 6.9% 6.9% 8.92 6.9% 6.9% 6.9% 6.9% 6.9%

9.42 8.4% 8.4% 8.4% 8.4% 8.4% 9.42 8.4% 8.4% 8.4% 8.4% 8.4%

9.92 9.7% 9.7% 9.7% 9.7% 9.7% 9.92 9.7% 9.7% 9.7% 9.7% 9.7%

Entry

Multiple

IRR - Assuming 8.92 Entry Multiple

Exit Year

Exit

Multiple

IRR - Assuming Exit in 2018E

Exit Multiple

33


Leveraged Buyout Analysis Financing Structure: Structure 1

($ in millions, fiscal year ending December 31) Operating Scenario: Base

% of Total % of Total Offer Price per Share 158.8 Exit Year 2018

Amount Sources 13/06/2014 Cumulative Pricing Amount Uses Fully Diluted Shares 284.9 Entry Multiple 8.92

Revolving Credit Facility - - - - L+425 bps Purchase Time Warner Cable Inc. 45,247.8 65.38% Equity Purchase Price 45,247.8 Exit Multiple 8.92

Term Loan A - - - - NA Repay Existing Debt 23,285.0 33.65% Plus: Existing Net Debt 23,285.0 IRR 6.9%

Term Loan B - 0.0% - - L+425 bps Tender / Call Premiums 15.0 0.02% Enterprise Value 68,532.8 Cash Return 1.40

Term Loan C - - - - NA Financing Fees 628.9 0.91%

2nd Lien - - - - NA Other Fees and Expenses 29.9 0.04%

Senior Notes 23,958.9 34.6% 3.0 3.0 8.50% Enterprise Value / Sales Financing Structure Structure 1

Senior Subordinated Notes - 0.0% - 3.0 9.50% LTM 30.09.2013 3.11 Operating Scenario Base

Equity Contribution 45,247.8 65.4% 5.8 8.8 2012E 3.10 Cash Flow Sweep Base

Rollover Equity - - - 8.8 Enterprise Value / EBITDA Cash Balance Base

Cash on Hand - 0.0% - 8.8 LTM 30.09.2013 8.71 Average Interest Structure 1

Total Sources 69,206.7 100.0% 8.8 8.8 Total Uses 69,206.7 100.00% 2012E 8.72 Financing Fees Structure 1

LTM Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2011 2012 2013 13/06/2014 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Sales 19,675.0 21,368.0 22,120.0 22,028.0 22,938.4 23,561.5 24,031.7 24,349.3 24,514.1 24,526.1 24,415.6 24,275.5 24,014.9 23,637.0 23,146.9

% growth NA 8.6% 3.5% NA 3.7% 2.7% 2.0% 1.3% 0.7% 0.0% -0.5% -0.6% -1.1% -1.6% -2.1%

Gross Profit 10,537.0 11,426.0 11,778.0 11,699.0 9,166.4 12,487.6 12,736.8 12,905.1 12,992.5 12,998.9 12,940.3 12,866.0 12,727.9 12,527.6 12,267.8

% margin 53.6% 53.5% 53.2% 53.1% 40.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.0%

EBITDA 7,096.0 7,691.0 7,861.0 7,864.0 4,053.1 8,270.1 8,435.1 8,546.6 8,604.4 8,608.7 8,569.9 8,520.7 8,429.2 8,296.6 8,124.6

% margin 36.1% 36.0% 35.5% 35.7% 17.7% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1%

Capital Expenditures 2,930.0 2,937.0 3,095.0 3,275.0 4,366.7 3,724.9 3,799.2 3,849.4 3,875.5 3,877.4 3,859.9 3,837.8 3,796.6 3,736.8 3,659.3

% sales 14.9% 13.7% 14.0% 14.9% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%

Cash Interest Expense - - - - - 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5 2,036.5

Total Interest Expense - - - - - 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,115.1 2,036.5 2,036.5

Free Cash Flow

EBITDA 8,270.1 8,435.1 8,546.6 8,604.4 8,608.7 8,569.9 8,520.7 8,429.2 8,296.6 8,124.6

Less: Cash Interest Expense - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5 - 2,036.5

Plus: Interest Income - 46.7 93.7 140.6 187.2 233.2 278.7 323.3 366.9 409.2

Less: Income Taxes - 866.1 - 881.9 - 887.7 - 883.5 - 869.4 - 847.5 - 823.9 - 792.6 - 779.0 - 733.5

Less: Capital Expenditures - 3,724.9 - 3,799.2 - 3,849.4 - 3,875.5 - 3,877.4 - 3,859.9 - 3,837.8 - 3,796.6 - 3,736.8 - 3,659.3

Less: Increase in Net Working Capital 13.7 72.3 48.8 25.3 1.9 - 17.0 - 21.5 - 40.1 - 58.1 - 75.3

Free Cash Flow 1,656.3 1,836.4 1,915.4 1,974.9 2,014.4 2,042.1 2,079.8 2,086.8 2,053.1 2,029.1

Cumulative Free Cash Flow 1,656.3 3,492.8 5,408.2 7,383.1 9,397.5 11,439.6 13,519.4 15,606.1 17,659.2 19,688.4

Transaction Summary

Multiple of EBITDA

Sources of Funds


Uses of Funds Return Analysis

Options

Purchase Price

Transaction Multiples

Summary Financial Data

34

The detailed Leveraged Buyout Analysis data can be found on the page “Transaction Summary” of Appendix 7: TWC Leveraged Buyout Analysis Excel File.

Cash - - 9,335.2 18,732.3 28,123.6 37,441.6 46,641.5 55,739.2 64,653.9 73,388.7 81,842.7

Revolving Credit Facility - - - - - - - - - - -

Term Loan A - - - - - - - - - - -

Term Loan B - - - - - - - - - - -

Term Loan C - - - - - - - - - - -

Existing Term Loan - - - - - - - - - - -

2nd Lien - - - - - - - - - - -

Other Debt - - - - - - - - - - -

Total Senior Secured Debt - - - - - - - - - - -

Senior Notes 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9

Total Senior Debt 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9

Senior Subordinated Notes - - - - - - - - - - -

Total Debt 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9 23,958.9

Shareholders' Equity 44,600.9 40,543.5 46,219.2 51,933.9 57,642.2 63,298.9 68,872.5 74,368.9 79,738.9 85,080.7 90,230.6

Total Capitalization 68,559.7 64,502.4 70,178.1 75,892.8 81,601.1 87,257.8 92,831.4 98,327.8 103,697.8 109,039.6 114,189.5

% of Bank Debt Repaid - 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

% Debt / Total Capitalization 34.9% 37.1% 34.1% 31.6% 29.4% 27.5% 25.8% 24.4% 23.1% 22.0% 21.0%

EBITDA / Cash Interest Expense NA 4.1 4.1 4.2 4.2 4.2 4.2 4.2 4.1 4.1 4.0

(EBITDA - Capex) / Cash Interest Expense NA 2.2 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.2 2.2

EBITDA / Total Interest Expense NA 3.9 4.0 4.0 4.1 4.1 4.1 4.0 4.0 4.1 4.0

(EBITDA - Capex) / Total Interest Expense NA 2.1 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2

Senior Secured Debt / EBITDA - - - - - - - - - - -

Senior Debt / EBITDA 5.9 2.9 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.9 2.9

Total Debt / EBITDA 5.9 2.9 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.9 2.9

Net Debt / EBITDA

Capitalization

Credit Statistics

35

Acquisition Analysis

Acquisition analysis is the key technique in the M&A deal, due to the reason that it includes all necessary data, and predicts

the outcomes and future performance of the merged company.

The entire analysis is based on the assumptions that were explained before, such as: 5 Operating Scenarios; Financing Structures; Assumptions regarding the target’s and acquirer’s

Income Statement, Balance Sheet, and Cash Flow Statement. However in the Acquisition analysis presents the effect of possible synergies created by the transaction on the merged

company’s operations. The synergies estimated to be “$1.5 billion in operating expenditures and $400 million in capital expenditures” as stated in “Comcast and Time Warner Cable

Transaction Fact Sheet”. For the analysis purposes author of the paper included options for changing the synergies amounts in the excel file, such as “

{ }; { }; { }, to illustrate the effects of realized or not

realized synergies on the merged company’s operations. However, in this paper only the synergies estimated by transaction participants are included in the analysis: Cost saving

synergies = 1,500; Capex synergies = 400.

Moreover, the author included the option of changing the percentage of cash from balance sheet that will be used for debt repayment (20%, 40%, 60%, 80%, 100%) for both

companies separately, and for the merged company. For this paper, the percentage of cash from balance sheet used for debt repayment is estimated to be 100% due to the reason

that as the companies will merge, the new entity will be highly leveraged by bank debts and bonds, that will not allow the new company to operate under its full capacity, therefore,

working off of all the debts is assumed to be as the best option.

The first part of the acquisition analysis is contribution analysis. Contribution analysis illustrates the financial contribution that each company makes to the pro forma entity in terms

of sales, EBITDA, EBIT, net income, and equity value. This analysis is typically used in stock-for-stock deals, and it allows us to assess the relative valuation of each party. The

contribution analysis can be seen below.

http://corporate.comcast.com/images/Transaction-Fact-Sheet-2-13-14.pdf

http://corporate.comcast.com/images/Transaction-Fact-Sheet-2-13-14.pdf

36

As evident from the analysis above, Comcast Corporation contributes much more than Time Warner Cable to the pro-forma entity. Comcast’s contribution on average is 3 times more

than Time Warner’s. Moreover, as we can see the contribution of Time Warner Cable Inc. to the pro-forma entity’s net income for the 2014E is negative (-56.1%), that is due to the

big amortization expenses as well as bonds repayments.

The detailed data regarding the pro-forma financial statements of Time Warner Cable Inc. and Comcast Corporation can be obtained from Appendix…

Contribution Analysis($ in millions, except per share data)

Pro Forma

Combined

Enterprise ValueSales

LTM 65,755.0 22,028.0 87,783.0 74.9% 25.1%

2014E 68,924.4 22,177.3 91,101.6 75.7% 24.3%

2015E 78,321.0 22,953.6 101,274.6 77.3% 22.7%

EBITDA

LTM 22,523.0 7,739.0 30,262.0 74.4% 25.6%

2014E 15,362.9 3,125.3 18,488.1 83.1% 16.9%

2015E 19,919.0 8,056.7 27,975.7 71.2% 28.8%

Enterprise Value

Current 161,374.1 66,694.8 228,068.9 70.8% 29.2%

4% Premium 167,829.1 69,362.6 237,191.7 70.8% 29.2%

6% Premium 171,056.6 70,696.5 241,753.1 70.8% 29.2%

8% Premium 174,284.1 72,030.4 246,314.5 70.8% 29.2%

Equity ValueNet Income

LTM 14,594.0 4,465.0 19,059.0 76.6% 23.4%

2014E 6,367.9 2,288.2- 4,079.7 156.1% -56.1%

2015E 11,144.9 5,665.2 16,810.1 66.3% 33.7%

Equity Value

Current 118,525.1 45,247.8 163,772.9 72.4% 27.6%

4% Premium 123,266.1 47,057.7 170,323.9 72.4% 27.6%

6% Premium 125,636.6 47,962.7 173,599.3 72.4% 27.6%

8% Premium 128,007.1 48,867.6 176,874.8 72.4% 27.6%

Comcast

Corporation

Time Warner

Cable Inc. Contribution (%)

74.9%

75.7%

77.3%

74.4%

83.1%

71.2%

70.8%

70.8%

70.8%

70.8%

25.1%

24.3%

22.7%

25.6%

16.9%

28.8%

29.2%

29.2%

29.2%

29.2%

76.6%

156.1%

66.3%

72.4%

72.4%

72.4%

72.4%

23.4%

-56.1%

33.7%

27.6%

27.6%

27.6%

27.6%

37

The next analysis that illustrates the effect of the acquisition is the Capitalization and Credit Statistics Analysis. Capitalization and Credit Statistics Analysis of the transaction between

Comcast Corporation and Time Warner Cable demonstrates that the pro-forma entity might be confident that it will not face rating downgrade, as the key leverage and coverage

ratios has changed in positive way after the transaction.

Credit and capitalization statistics can be seen below.


Capitalization

Comcast Corporation Time Warner Cable Inc. Pro Forma 1 2 3 4 5

2013 2013 + - 2013 2014 2015 2016 2017 2018

Cash 1,718.00 525.00 - 2,243.00 9,289.83 19,301.18 30,348.66 42,465.75 55,633.18

Revolving Credit Facility - - - - - - - - -

Time Warner Cable Inc. Term Loan - 23,285.00 23,285.00- - - - - - -

New Term Loan A - - - - - - - - -

New Term Loan B - - - - - - - - -

New Term Loan C - - - - - - - - -

Other Debt - - - - 29,867.18 24,439.00 24,439.00 24,439.00 24,439.00

Total Senior Secured Debt - 23,285.00 23,285.00 29,867.18 24,439.00 24,439.00 24,439.00 24,439.00

Comcast Corporation Senior Notes 44,567.00 - - - 44,567.00 44,630.00 44,630.00 44,630.00 44,630.00 44,630.00

Time Warner Cable Inc. Senior Notes - 5,790.00 - 5,790.00- - - - - - -

New Senior Notes - - 23,958.89 - 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89 23,958.89

Total Senior Debt 44,567.00 29,075.00 91,810.89 98,456.07 93,027.89 93,027.89 93,027.89 93,027.89

Senior Subordinated Notes - - - - - - - - -

Total Debt 44,567.00 29,075.00 91,810.89 98,456.07 93,027.89 93,027.89 93,027.89 93,027.89

Shareholders' Equity 50,694.00 1,874.00 45,202.85 1,874.00- 95,896.85 105,146.31 110,956.82 117,746.94 125,550.15 134,347.17

Total Capitalization 95,261.00 30,949.00 187,707.74 203,602.38 203,984.71 210,774.83 218,578.04 227,375.06

Projection Period

Adjustments

Credit StatisticsEBITDA 20,578.70 3,250.62 1,500.00 23,829.31 34,132.16 37,719.40 41,512.74 45,512.18 49,717.74

Capital Expenditures 15,664.20 3,628.77 400.00- 15,487.28 17,216.68 19,054.69 21,001.32 23,056.56 25,220.43

Interest Expense 2,343.30 497.40 4,226.28 4,226.28 4,226.28 4,226.28 4,226.28 4,304.90

EBITDA / Interest Expense 8.78 6.54 5.64 8.08 8.92 9.82 10.77 11.55

(EBITDA - Capex) / Interest Expense 2.10 0.76- 1.97 4.00 4.42 4.85 5.31 5.69

Senior Secured Debt / EBITDA - 7.16 0.98 0.88 0.65 0.59 0.54 0.49

Senior Debt / EBITDA 2.17 8.94 3.85 2.88 2.47 2.24 2.04 1.87

Total Debt / EBITDA 2.17 8.94 3.85 2.88 2.47 2.24 2.04 1.87

Net Debt / EBITDA 2.08 8.78 3.95 3.16 2.98 2.97 2.98 2.99

% Debt / Total Capitalization 46.8% 93.9% 48.9% 48.4% 45.6% 44.1% 42.6% 40.9%

38

The next analysis that needs to be conducted in order to observe the effect of the transaction on a potential acquirer’s earnings, assuming a given financing structure is the Accretion

/ (Dilution) Analysis.

The Accretion / (Dilution) Analysis compares the acquirer’s EPS pro-forma for the transaction versus on a standalone basis. If the pro-forma combined EPS is lower that the acquirer’s

standalone EPS, the transaction is dilutive, if the pro-forma EPS is higher, then the transaction is accretive.

The detailed Accretion / (Dilution) Analysis is illustrated below.

($ in millions, except per share data)

Accretion / (Dilution) Analysis - 100% Stock

Pro Forma 1 2 3 4 5

2013 2014 2015 2016 2017 2018

Comcast Corporation EBIT 7,051.68 10,598.80 12,154.57 13,861.40 15,724.05 17,747.26

Time Warner Cable Inc. EBIT - 1,240.05 4,705.48 4,833.28 4,929.76 4,994.90 5,028.70

Synergies 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00

Pro Forma Combined EBIT (pre-deal structure) 7,711.63 17,204.28 18,887.85 20,691.15 22,618.94 24,675.97

Depreciation from Write-Up 752.80 752.80 752.80 752.80 752.80 752.80

Amortization from Write-Up 284.09 284.09 284.09 284.09 284.09 284.09

Pro Forma Combined EBIT 8,748.52 18,241.17 19,924.74 21,728.04 23,655.83 25,712.86

Standalone Net Interest Expense 2,334.71 2,343.30 2,343.30 1,631.42 1,105.70 1,105.70

Incremental Net Interest Expense 1,891.58 1,882.99 1,882.99 2,594.87 3,120.59 3,199.20

Earnings Before Taxes 4,522.23 14,014.88 15,698.46 17,501.76 19,429.55 21,407.96

Income Tax Expense @35.0% 1,582.78 4,905.21 5,494.46 6,125.62 6,800.34 7,492.78

Pro Forma Combined Net Income 6,105.02 18,920.09 21,192.91 23,627.37 26,229.89 28,900.74

Comcast Corporation Stanalone Net Income 6,367.92 11,144.93 13,245.21 16,510.47 19,734.77 22,466.12

Standalone Fully Diluted Shares Outstanding 2,138.08 2,228.33 2,228.33 2,228.33 2,228.33 2,228.33

Net New Shares Issued in Transaction 850.68 850.68 850.68 850.68 850.68 850.68

Pro Forma Fully Diluted Shares Outstanding 2,988.76 3,079.02 3,079.02 3,079.02 3,079.02 3,079.02

Pro Forma Combined Diluted EPS 2.04 6.14 6.88 7.67 8.52 9.39

Comcast Corporation Diluted EPS 2.98 5.00 5.94 7.41 8.86 10.08

Accretion / (Dilution) - $ - 0.94 1.14 0.94 0.26 - 0.34 - 0.70

Accretion / (Dilution) - % -31.4% 22.9% 15.8% 3.6% -3.8% -6.9%

Accretive / (Dilutive) Dilutive Accretive Accretive Accretive Dilutive Dilutive

Included Pre-Tax Synergies 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00

Additional Pre-Tax Synergies to Breakeven 4,302.34 5,416.17- 4,448.07- 1,252.17- 1,598.11 3,295.35

Required Synergies to Breakevern / (Cushion) 6,202.34 3,516.17- 2,548.07- 647.83 3,498.11 5,195.35

Projection Period

39

As observable from the analysis above, the respective transaction cannot be named as fully dilutive or accretive, due to the reason that Time Warner Cable Inc. is a very leveraged

company, and Comcast Corporation will have to pay off the debt outstanding, therefore as the debt payments are not very significant (years 2014-2016) the transaction is accretive,

but as the debt payments are getting bigger the transaction becomes dilutive.

After preparing pro-forma financial statements of the created entity through the acquisition of Time Warner Cable Inc. by Comcast Corporation, the next and last analysis need to be

made, that includes all the relevant data regarding the respective transaction – the Merger Consequences Analysis.

The analysis can be observed on the following pages.

Comcast Corporation Acquisition of Time Warner Cable Inc.Merger Consequences Analysis($ in millions, fiscal year ending December 31)

Financing Structure & Operating Scenarios Synergies Cash from Balance Sheet Available for Debt RepaymentFinancing Structure: Structure 1 Revenue: - Comcast Corporation 100%

Operating Scenario (CMCSA): Base Cost Saving: 1,500.00 Time Warner Cable Inc. 100%

Operating Scenario (TWC): Base Capex: 400.00 Pro Forma 100%

Transaction Summary

% of Total % of Total

Amount Sources 30/09/2013 Cumulative Pricing Amount Uses

Revolving Credit Facility - - - - L+425 bps Purchase Time Warner Cable Inc. 45,247.8 65.38%

Term Loan A - - - - NA Repay Existing Debt 23,285.0 33.65%

Term Loan B - 0.0% - - L+425 bps Tender / Call Premiums 15.0 0.02%

Term Loan C - - - - NA Financing Fees 628.9 0.91%

2nd Lien - - - - NA Other Fees and Expenses 29.9 0.04%

Senior Notes 23,958.9 34.6% 3.0 3.0 8.50%

Senior Subordinated Notes - 0.0% - 3.0 9.50%

Issuance of Common Stock 45,247.8 65.4% 5.6 8.6

Cash on Hand - 0.0% - 8.6

Other - 8.6

Total Sources 69,206.7 100.0% 8.6 8.6 Total Uses 69,206.7 100.00%

Multiple of EBITDA

Sources of Funds Uses of Funds

Transaction Summary

Time Warner Cable Inc. Current Share Price 152.9 Stock Consideration for Equity 100%

Offer Price per Share 158.8 Transaction Debt Raised 23,958.89

Premium Paid 5.91 % of Time Warner Cable Inc. Enterprise Value 35.9%

Comcast Corporation Current Share Price 53.19 Acquisition Type Stock

Exchange Ratio 2.986

Year 1 Synergies 1,900.00

Offer Price per Share 158.8 Financing Structure Structure 1

Fully Diluted Shares 284.9 Operating Scenario Base

Equity Purchase Price 45,247.8 Cash Flow Sweep Base

Cash Balance Base

Plus: Existing Net Debt 23,285.0 Average Interest Structure 1

Enterprise Value 68,532.8 Financing Fees Structure 1

Acquisition Structure & Synergies

OptionsPurchase Price

Premium Paid & Exchange Rario

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Pro Forma Financial SummaryPro Forma 1 2 3 4 5

2013 2014 2015 2016 2017 2018

Sales 91,101.64 101,274.56 112,086.40 123,537.16 135,626.84 148,355.45

% growth 5.9% 11.2% 10.7% 10.2% 9.8% 9.4%

Gross Profit 55,120.51 65,423.67 72,682.20 80,398.13 88,571.45 97,202.17

% margin 60.5% 64.6% 64.8% 65.1% 65.3% 65.5%

EBITDA 23,829.31 34,132.16 37,719.40 41,512.74 45,512.18 49,717.74

% margin 26.2% 33.7% 33.7% 33.6% 33.6% 33.5%

Interest Expense 4,226.28 4,226.28 4,226.28 4,226.28 4,226.28 4,304.90

Net Income 8,987.9 10,839.5 12,439.0 14,154.3 15,988.5 17,893.5

% margin 9.9% 10.7% 11.1% 11.5% 11.8% 12.1%

Fully Diluted Shares 2,988.76 3,079.02 3,079.02 3,079.02 3,079.02 3,079.02

Diluted EPS 3.01 3.52 4.04 4.60 5.19 5.81

Cash Flow from Operating Activities 24,263.50 29,066.04 32,048.80 35,173.66 38,387.85 38,387.85

Less: Capital Expenditures 17,216.68 19,054.69 21,001.32 23,056.56 25,220.43 25,220.43

Free Cash Flow 7,046.83 10,011.35 11,047.48 12,117.09 13,167.43 13,167.43

Senior Secured Debt - 29,867.18 24,439.00 24,439.00 24,439.00 24,439.00

Senior Debt 91,810.89 98,456.07 93,027.89 93,027.89 93,027.89 93,027.89

Total Debt 91,810.89 98,456.07 93,027.89 93,027.89 93,027.89 93,027.89

Cash & Equivalents 2,243.00 9,289.83 19,301.18 30,348.66 42,465.75 55,633.18

Credit StatisticsComcast Corporation Pro Forma 1 2 3 4 5

2013 2013 2014 2015 2016 2017 2018

EBITDA / Interest Expense 8.78 5.64 8.08 8.92 9.82 10.77 11.55

(EBITDA - Capex) / Interest Expense 2.10 1.56 3.57 3.96 4.37 4.80 5.69

Senior Secured Debt / EBITDA - - 0.88 0.65 0.59 0.54 0.49

Senior Debt / EBITDA 2.17 3.85 2.88 2.47 2.24 2.04 1.87

Net Debt / EBITDA 2.08 3.95 3.16 2.98 2.97 2.98 2.99

Debt / Total Capitalization 46.8% 48.9% 48.4% 45.6% 44.1% 42.6% 40.9%

Accretion / (Dilution) Analysis

Comcast Corporation Standalone Diluted EPS 2.98 5.00 5.94 7.41 8.86 10.08

Time Warner Cable Inc. Standalone EPS - 8.03 19.88 10.75 11.01 11.20 11.32

Pro Forma Combined Diluted EPS 2.04 6.14 6.88 7.67 8.52 9.39

Accretion / (Dilution) - $ - 0.94 1.14 0.94 0.26 - 0.34 - 0.70

Accretion / (Dilution) - % -31.4% 22.9% 15.8% 3.6% -3.8% -6.9%

Accretive / Dilutive Dilutive Accretive Accretive Accretive Dilutive Dilutive

Breakeven Pre-Tax Synergies / (Cushion) 6,202.34 - 3,516.17 - 2,548.07 647.83 3,498.11 5,195.35

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Valuation SummaryTarget Acquier

Company Name Time Warner Cable Inc. Comcast Corporation

Ticker TWC CMCSA

Current Share Price 15/06/2014 152.9 53.2

Premium to Current Share Price 5.91 -

Offer Price per Share 158.82 -

Fully Diluted Shares 284.90 2,228.33

Equity Value 45,247.8 118,525.1

Plus: Total Debt 23,285.00 44,567.00

Plus: Preferred Equity - -

Plus: Noncontrolling Interest - -

Less: Cash and Equivalents 1,838.0 1,718.0

Enterprise Value 66,694.8 161,374.1

Transaction Multiples

Metric Multiple Metric Miltiple

Enterprise Value / LTM EBITDA 7,739.00 8.62 22,523.00 7.16

Enterprise Value / 2014E EBITDA 3,125.28 21.34 15,362.86 10.50

Enterprise Value / 2015E EBITDA 8,056.70 8.28 19,919.00 8.10

Equity Value / 2014E Net Income - 2,288.24 - 19.77 6,367.92 18.61

Equity Value / 2015E Net Income 5,665.18 7.99 11,144.93 10.63

Pro Forma OwnershipShares Ownership

Existing Comcast Corporation Shareholders 2,228.33 72.4%

Former Time Warner Cable Inc. Shareholders 850.68 27.6%

Pro Forma Fully Diluted Shares 3,079.02 100.0%

Annual EPS Accretion / (Dilution) Sensitivity Analysis - Premium Paid

Offer Price Premium 2014 2015 2016 2017 2018

155.82 1.9% -55.4% 12.6% 11.3% 1.9% -3.7%

157.34 2.9% -55.6% 12.3% 11.0% 1.6% -3.9%

158.82 3.9% 0.0% 0.0% 0.0% 0.0% 0.0%

160.40 4.9% -55.8% 11.7% 10.5% 1.1% -4.4%

161.93 5.9% -55.9% 11.4% 10.2% 0.8% -4.7%

2015E EPS EPS Accretion / (Dilution) Sensitivity Analysis - Premium Paid & Consideration Mix% Stock Consideration Mix

Offer Price Premium 0% 25% 50% 75% 100%

155.82 1.9% 53.0% 39.7% 28.5% 19.0% 11.3%

157.34 2.9% 53.0% 39.8% 28.7% 19.2% 11.0%

158.82 3.9% 53.0% 39.7% 28.5% 19.0% 10.8%

160.40 4.9% 53.0% 39.6% 28.3% 18.7% 10.5%

161.93 5.9% 53.0% 39.5% 28.1% 18.5% 10.2%

Year

AcquierTarget

42

The detailed excel file with target company regression analysis can be obtained from the link in Appendix 8: Comcast Corporation Acquisition of Time Warner Cable Inc. Analysis Excel

File.

To conclude it can be argued that the acquisition of Time Warner Cable Inc. is a promising deal for Comcast Corporation, as it will generate high synergies for the pro-forma entity

according to the previous analyses, will increase the market share on the cable market that will make the entity not only the leading but almost a monopoly in the US market.

Moreover, this stock-for-stock transaction will benefit Time Warner Cable’s shareholders as they will own 23% of the new entity’s stocks, which are expected to increase in price after

the acquisition. In addition to that, the customers of Time Warner Cable Inc. and Comcast Corporation will benefit from the deal as well, due to the reason that the new entity will be

able to provide new technologies to the customers that did not have an access to, before. Furthermore, as Time Warner Cable Inc. has a strong cash generation projections, has the

leading market positions, and has a proven management team, it can be argued that the target is the good one and will provide benefits to the acquirer in the future. However, for

the acquisition in order to be successful the pro-forma entity should pay off all previous companies’ debts in order to have enough free cash flow for company’s operations.

43

Appendix:

Appendix 1: Target Company Input Excel File

Appendix 2: TWC Precedent Transactions Input Excel File

Appendix 3: TWC Precedent Transactions Analysis Output Excel File

Appendix 4: TWC Regression Analysis Excel File

Appendix 5: CMCSA Regression Analysis Excel File

Appendix 6: TWC Discounted Cash Flow Analysis Excel File

Appendix 7: TWC Leveraged Buyout Analysis Excel File

Appendix 8: Comcast Corporation Acquisition of Time Warner Cable Inc. Analysis Excel File

Bibliography:

Joshua Rosenbaum and Joshua Pearl, Investment Banking. Valuation, Leveraged Buyouts, and Mergers & Acquisitions. (May 2009).

Aswath Damodaran, Capital Expenditures by Sector (January 2014). http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/capex.html

https://drive.google.com/file/d/0ByIX26TeAAT5YWZwRV9yTWNTM28/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5dU9PZFJSRnE0RzQ/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5V1pSMjlTdjJCZkE/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5Z3J6STg0QmhkZWs/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5dFBFN3lib2JPYXM/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5UDB6TzMwTEZ2YTA/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5NEZGSllxeGJDMXc/edit?usp=sharing

https://drive.google.com/file/d/0ByIX26TeAAT5Yk5Za0Nad2hjTFU/edit?usp=sharing

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/capex.html

Economy & Finance

Comcast corporation acquisition of time warner cable inc. analysis