Charter Communications To Buy Time Warner Cable For $78.7 Bln

(RTTNews) - Charter Communications, Inc. (CHTR) has agreed to acquire Time Warner Cable Inc. (TWC) in a cash-and-stock deal, the two cable operators said Tuesday. Including debt, the deal values Time Warner Cable at $78.7 billion.

Bright House Networks LLC, a smaller cable operator that Charter was trying to buy, will also be merged into the combined entity.

The deal comes a month after the largest U.S. cable operator Comcast Corp. (CMCSK, CMCSA) abandoned its $45 billion merger with the second-largest U.S. cable operator Time Warner Cable or TWC, amid regulatory resistance.

The combination of Charter, Time Warner Cable and Bright House will create a broadband services and technology company serving 23.9 million customers in 41 states. This compares to Comcast's total customers totaling 27 million.

Towards the deal, Charter will pay $100 in cash and shares of a new public parent company, New Charter, equivalent to 0.5409 shares of Charter for each TWC share outstanding. The deal values each TWC share at about $195.71 based on Charter's market closing price on May 20. This represents a 14 percent premium to TWC's closing stock price on Friday.

Each Time Warner Cable stockholder who will receive all stock will be provided an election option by Charter to receive $115 of cash and New Charter shares equivalent to 0.4562 shares of Charter for each Time Warner Cable share held by them.

Further, Charter and Advance/Newhouse Partnership, a parent of Bright House Networks, LLC, said the two companies have amended their deal announced in March for Charter to acquire Bright House Networks for $10.4 billion.

Under the amendment, Charter and Advance/Newhouse will form a new partnership, of which New Charter will own a stake of about 86 percent to 87 percent, while Advance/Newhouse will own the remaining 13 percent to 14 percent stake. This will depend on the Time Warner Cable shareholders' cash election option.

Charter will pay a consideration to Advance/Newhouse that will include common and convertible preferred units in the partnership, in addition to $2 billion in cash.

These units will each be exchangeable into shares of New Charter. The Charter-Advance/Newhouse transaction is expected to close contemporaneously with the Charter-Time Warner Cable transaction.

The Charter-TWC transaction is subject to approval by shareholders of both Charter and TWC, in addition to regulatory review and other customary conditions.

Charter said that its largest shareholder, Liberty Broadband Corp. (LBRDA, LBRDK), has agreed to purchase $4.3 billion of newly issued shares of New Charter at a price equivalent to $176.95 per Charter share, upon closing of the TWC transaction. Cable tycoon John Malone is the chairman of Liberty Broadband Corp.

In addition, Liberty Broadband will buy $700 million of newly issued Charter shares at a price equivalent to $173.00 per Charter share, upon closing of the Charter-Advance/Newhouse transaction.

Following the close of the TWC and Advance/Newhouse transactions, and depending on the outcome of the cash election feature offered in the TWC transaction, Time Warner Cable shareholders, excluding Liberty Broadband, are expected to own between 40 percent and 44 percent of New Charter.

Advance/Newhouse is expected to own about 13 percent to 14 percent of New Charter, while Liberty Broadband is expected to own a stake of about 19 percent to 20 percent.

New Charter will be led by Tom Rutledge, who will serve as President and CEO. Additionally, Rutledge will be offered a new five-year employment agreement.

At the close of the transactions, New Charter's board of directors will consist of 13 directors including Rutledge, who will be the Chairman.

Charter's current Chairman since 2009, Eric Zinterhofer, will continue to serve on New Charter's Board.

CHTR is trading at $175.88, up $0.55 or 0.31 percent on a volume of 9.21 million shares.

TWC is trading at $179.44, up $8.26 or 4.83 percent on a volume of 17.92 million shares.