Is it Better to Invest in Time Warner Cable or Comcast Stock Before Merger?

The stock market dynamic surrounding a company merger is complex. For the acquired company, such as Time Warner Cable, the chances of its stock increasing up to at least the offer price by the purchasing company are high. This increase is usually due to the acquirer's belief in the acquired company's value. Even more so, the major shareholders, along with the management board of the purchased company, determine a fair premium, which they are willing to consider. Therefore, holding shares of an acquired company is often a wise choice, unless there's a high possibility the deal will be blocked by regulators for the sake of monopolistic practices. In such a scenario, selling at the offer price is a reasonable option.

Stock Movements of the Purchasing Company

The movement of Comcast stock, on the other hand, is less predictable. The stock price can rise or fall depending on several factors, including the synergy between the two parties, the revenue contribution from the acquired company, the market share post-merger, and the strategic objectives of the acquisition. Often, the deal is initiated to relieve the pressure from major shareholders, which could be activist or institutional investors. In such cases, the stock price typically rises. However, when there is a misalignment between the company's management and investor perspectives, the deal could be met with resistance, leading to a decline in stock price.

Investment Considerations and Timing

In summary, while holding shares of the acquired company is a strategic choice, it's essential to consider the timing and your investment horizon. For long-term investors, holding Time Warner Cable before the merger could be a good strategy. The substantial upside, if present, is likely to materialize in the years following the merger. However, for short-term investors who are looking for immediate gains, this is not an ideal scenario. The value of the investment will only be unlocked in the long run, and short-term investors might face significant disappointment.

Conclusion

To conclude, while both Time Warner Cable and Comcast offer investment opportunities, the benefits and risks are different. For those who can wait and are looking for long-term gains, investing in Time Warner Cable before the merger seems to be the better choice. However, for investors who are focused on short-term returns, it might be more prudent to consider other investments or, if the deal is not well-received by the market, to invest in Comcast. In either case, careful consideration and research are crucial to making the right decision.