It's Official: Charter to Acquire Time Warner Cable in Deal Valued at $78.7 Billion

Charter CEO Tom Rutledge - H 2014
AP Photo/Richard Drew

Charter CEO Tom Rutledge - H 2014

Charter, in which John Malone's Liberty Media owns a big stake, reached a deal just weeks after Comcast abandoned its plans to buy the second-largest U.S. cable operator.

Charter Communications, in which John Malone's Liberty Broadband owns a big stake, made it official on Tuesday, unveiling that it has agreed to acquire Time Warner Cable in a deal valued at $78.7 billion.

Comcast recently abandoned plans to buy Time Warner Cable, the second-largest U.S. cable operator, amid regulators' opposition. Charter, which is currently the fourth-largest U.S. cable firm and has been touting the benefits of consolidation, had widely been seen as the lead suitor.

Charter will pay $55 billion-plus in cash and stock for Time Warner Cable. Including debt, the deal values Time Warner Cable at $78.7 billion.

Charter, led by CEO Tom Rutledge, on Tuesday also said that it has finalized an updated deal with Advance/Newhouse Partnership, the parent company of Bright House Networks, to acquire it for $10.4 billion. The amended agreement provides for Charter and Advance/Newhouse to form a new partnership, of which Charter will own 86 or 87 percent, depending on shareholder decisions that are part of the Time Warner Cable deal. Charter will pay Advance/Newhouse common and convertible preferred units in the partnership in addition to $2 billion in cash. Both transactions are expected to close contemporaneously.

The combined company will be the second-largest U.S. cable operator and the largest in Southern California. It will be the third-largest pay TV company in the U.S. behind Comcast and the planned AT&T-DirecTV. It would be the biggest player in such major markets as New York and L.A. Overall, the combined cable company would have 23.9 million total subscribers in 41 markets, compared with Comcast’s roughly 27 million customer relations as of the end of the first quarter.

The deals are set to once again make Malone a big cable industry player in the U.S. His Liberty Broadband owns cable assets across Europe. In 2013, Charter unsuccessfully approached Time Warner Cable about a deal before last year losing out to Comcast. But with Comcast's deal abandoned, Charter started friendly talks and sealed the deal.

Analysts have said the deal is likely to face a stringent regulatory review but will likely raise fewer concerns than the dropped Comcast deal, given the latter's bigger size. The Charter-Time Warner Cable transaction is subject to approval by both companies' shareholders, regulatory review and other customary conditions. The Charter-Advance/Newhouse transaction is subject to several conditions, including the completion of the Time Warner Cable acquisition and regulatory approval. The three companies said they expect to close the deals by the end of 2015.

Rutledge will continue as president CEO of the combined company and will be offered the chairman role as well as part of a new five-year employment agreement, the companies said. Time Warner Cable shareholders, excluding Liberty Broadband, are expected to own approximately 40-44 percent of New Charter, with Advance/Newhouse expected to own 13-14 percent and Liberty Broadband expected to own 19-20 percent.

Charter said it would pay Time Warner Cable stockholders $100 per share in cash and stock of a new company called New Charter equivalent to 0.5409 shares of current Charter. The deal values each Time Warner Cable share at approximately $195.71 based on Charter’s market closing price on May 20, or approximately $200 based on Charter’s 60-trading day volume weighted average price. Charter will also provide an option for each Time Warner Cable stockholder to receive $115 in cash and fewer Charter shares for each Time Warner Cable share they own.

To help finance the Time Warner Cable deal, Charter said it would sell $5 billion of stock to Liberty Broadband, which is the home of Liberty Media's cable holdings. Time Warner Cable will receive a $2 billion breakup fee if the deal doesn't get completed. Comcast had not set such a fee in its deal for TW Cable.

Bloomberg News had reported Monday that Charter and Time Warner Cable were close to reaching a deal.

"The teams at Charter, Time Warner Cable and Bright House Networks are filled with the innovators of our industry," said Rutledge. "Representatives of each of these companies have invented some of the most revolutionary communications products ever created; innovations like video on demand, VOIP phone service, remote storage DVR, cable TV through an app, downloadable security and the first backward-compatible, cloud-based user interface. That spirit of innovation will live on, and it will create real benefits and great long-term value for the customers, shareholders and employees of all three companies."

He added: "With our larger reach, we will be able to accelerate the deployment of faster Internet speeds, state-of-the-art video experiences, and fully featured voice products at highly competitive prices. In addition, we will drive greater competition through further deployment of new competitive facilities-based Wi-Fi networks in public places, and the expansion of the facilities footprint of optical networks to serve the large, small and medium-size business services marketplace."

He vowed that the larger company would "deliver a communications future that will unleash the full power of the two-way, interactive cable network."

Time Warner Cable chairman and CEO Rob Marcus said the deal delivered on his team's promise to "maximize shareholder value." He added: "This agreement recognizes the unique value of Time Warner Cable and brings together three great companies that share a common philosophy of strong operations, great products, robust network investment and putting customers first. This combination will only accelerate the great operating momentum we've seen over the last year and provide enormous opportunities for our 55,000 dedicated employees."

Twitter: @georgszalai