Boutique banks to suffer most if Comcast-Time Warner Cable deal vetoed

Tue Apr 21, 2015 1:59am EDT
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By Liana B. Baker

(Reuters) - Hints that U.S. regulators could veto Comcast Corp's proposed $45 billion takeover of Time Warner Cable Inc have investment bankers worried about whether they will get paid, with smaller advisory firms particularly on edge.

Boutique investment banks such as Allen & Company, Centerview Partners and Paul Taubman's PJT Partners have limited resources compared to their larger brethren, and they use them to win mandates on a few big deals. Yet it is megadeals such as the Comcast-Time Warner Cable buyout, that carry the most regulatory risk.

"Big banks have many deals going on, and they can afford to lose one more, even though it is painful. Smaller firms are less diversified, so for them it’s much more painful," said Campbell Harvey, a professor of international business at Duke University's Fuqua School of Business.

At least $140 million in investment banking advisory fees are at risk if the Department of Justice ends up blocking the deal. Bloomberg News reported on Friday that staff attorneys at the department's antitrust division were nearing a recommendation to veto the takeover because of concern about its impact on consumers.

As much as $170 million in fees on two smaller transactions tied to the Time Warner buyout involving Comcast rival Charter Communications Inc may be in peril too, according to estimates by consulting firm Freeman & Co LLC.

To be sure, bankers often negotiate a provision that allows them to be paid a fraction of the agreed fee if the deal falls through. These agreements are not public, but Freeman & Co estimates they amount to just 10 to 15 percent of the fee with a consummated transaction.

JPMorgan Chase & Co, former top Morgan Stanley banker Taubman and Barclays, which jointly advised Comcast, would split an estimated $51 million to $68 million in advisory fees if the proposed takeover goes through, according to Freeman.

Financial advisers to Time Warner Cable - Morgan Stanley, Allen & Company, Citigroup Inc and Centerview Partners - are set to share $57 million to $75 million in fees, the estimates show.   Continued...

A Comcast sign is shown on the side of a vehicle in San Francisco, California February 13, 2014.  REUTERS/Robert Galbraith