A Cable Merger has the Stock Market on Edge

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Wall Street has been rattled over the cable company concentration and net neutrality debate. This discomfort is evident in some unusual moves in the share prices of Comcast and Time Warner Cable, the two cable giants that announced in February that they intended to merge in a $45 billion all-stock deal. While their adjusted prices should be converging — if you assume the merger will eventually be completed without major problems — the spread has actually widened strikingly since early September.

Regulators in Washington and in some state and local governments are reviewing the merger. As regulatory issues crucial to cable companies and the Internet have heated up, the stock market has reacted with varying degrees of consternation.

“The prices haven’t really been moving in the way you’d expect in a merger,” said Jeffrey Wlodarczak, C.E.O. of Pivotal Research, a market research firm. While he said he expected the deal to be completed eventually, “when you look at the numbers, there’s obviously concern about what the F.C.C. and other regulators are going to do — whether they’re going to let the merger go through, or whether they’ll tie a lot of conditions to it.”

Investor concerns focus mainly on the Internet side of cable operations. They include these questions: Will the Federal Communications Commission act to ensure an open Internet — also known as net neutrality — and competitive and reasonably priced choices for consumers, in ways that might impair cable company profitability? Will federal agencies block the merger outright, or impose conditions that might make it economically unattractive? And if the merger does not take place, auguring a tougher regulatory climate, are the two companies, particularly Time Warner Cable, appropriately priced?

As always, the market is converting the collective intelligence of its participants into prices, and there is evidence that investors are worried. “No question, if you look at the prices, you see that the market is factoring in some problems,” said Mike McCormack, an equity analyst at Jefferies. “Investors are worried that onerous conditions could be imposed on the deal.”