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Charter Seals Deals for TWC, Bright House

Mari Silbey
5/26/2015

In a highly anticipated move, Charter has finally sealed a deal to acquire Time Warner Cable in a $56 billion cash-and-stock agreement that, including debt, values TWC at a whopping $78.7 billion.

The deal puts a large premium on the $45.2 billion bid originally offered by Comcast Corp. (Nasdaq: CMCSA, CMCSK), which failed to meet regulatory approval and ultimately collapsed last month. It will create a new No. 2 MSO in the US, elevating Charter Communications Inc. almost to the ranks of Comcast. (See Charter Nears Deal for TWC – Reports and Comcast Formally Ends Its Bid for TWC.)

As recently as last week, French telecom operator Altice was also said to be wooing Time Warner Cable Inc. (NYSE: TWC) after announcing its planned acquisition of Suddenlink Communications . That fact, combined with TWC's improved operational results over the last year, no doubt contributed to the company's elevated valuation. (See Is Altice the Great US Cable Consolidator?)

In addition to acquiring Time Warner Cable, Charter reaffirmed its commitment to purchase Bright House Networks for $10.4 billion. (See Charter, Bright House: The Wedding's Back On.)

The proposed transactions are financially complex, involving both cash and stock, as well as further investment from Charter stakeholder Liberty Broadband. Liberty had already agreed to buy $700 million in shares of the new Charter with the purchase of Bright House, but the company will now pay for an additional $4.3 billion in shares with the buyout of TWC. The total brings Liberty's new investment in the merged entity to $5 billion.

On an investor call hosted by Charter and Time Warner Cable, senior executives of both MSOs took pains to illustrate the reasons why Charter's takeover bid for TWC is different from Comcast's, and therefore more likely to pass government inspection.

"From a regulatory perspective, I'm confident that our proposed transactions will obtain approval from regulators," asserted Charter President and CEO Tom Rutledge, who will run the new Charter. He added later that "we're a very different company than Comcast, and this is a very different transaction."

Rutledge noted that the combined entities of Charter, TWC and Bright House will still have fewer wireline broadband customers than Comcast -- 19.4 million as opposed to 22 million -- and fewer video customers at 17.3 million than either Comcast with its 22.4 million or the presumed merged entity of AT&T Inc. (NYSE: T) and DirecTV Group Inc. (NYSE: DTV) with its 26.3 million. All told, the expanded Charter would control less than 30% of broadband customers using the Federal Communications Commission (FCC) 's new broadband definition of 25 Mbits/s downstream.


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Rutledge pointed out that Charter also owns no programming entities, and would be the largest cable company in only five of the top 20 US markets if the deal with TWC and Bright House is completed.

From an investment perspective, Rutledge explained that while Charter is now paying a higher price for Time Warner Cable, it's also taking over a company that is operating more successfully than it was a year ago.

"Our view of the business is that these assets are in good shape. They're in better shape than they were previously," said Rutledge.

The Charter CEO also acknowledged, however, that additional network investments will be needed.

"We will have a period of capital intensity, followed by a period where capital intensity will decline," said Rutledge, explaining that after the continued upgrade of the Time Warner Cable properties to all-digital, Charter should be able to take advantage of cost efficiencies from cloud-based product development and cheaper set-tops using open standards and downloadable security technology. (See Charter Thinks Outside the 'Worldbox'.)

Among other highlights on the call, Rutledge referenced Charter's plans to continue expanding its WiFi footprint and build out its optical network further in order to compete for more commercial services customers.

As for branding, Rutledge announced that Charter will continue to introduce and reinforce the Spectrum name as the company rolls out advanced services in new markets.

Comcast, which insists that it has moved on since its Time Warner Cable bid collapsed last month, wished TWC's new suitors well. "This deal makes all the sense in the world," said Chairman and CEO Brian Roberts in a prepared statement. "I would like to congratulate all the parties."

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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Phil_Britt
Phil_Britt
5/28/2015 | 9:47:09 AM
Re: Will be #2 after Comcast... FCC approves
KBode,

I agree, thought I don't know how much the large footprint was a factor. Charter's is fairly large, too. But the control of content and footprint are likely what spooked the FCC. Comcast having that much dominance would have harkened back to the days of three networks, though even with much more to choose from today there is very little good content.
KBode
KBode
5/27/2015 | 6:13:55 PM
Re: Will be #2 after Comcast... FCC approves
No,  just pointing out the stats, since they surprised me. I agree that they don't compete directly and therefore the competitive impact of the merger is nil.
mhhf1ve
mhhf1ve
5/27/2015 | 5:17:05 PM
Re: Will be #2 after Comcast... FCC approves
Even if the new Charter has a couple more million subscribers than Comcast... do any of their customers overlap geographically? Part of the logic Comcast gave for its proposed merger with TWC was that their footprints were in different parts of the country. 
KBode
KBode
5/27/2015 | 2:46:02 PM
Re: Will be #2 after Comcast... FCC approves
I've read a few stat analysis bits suggesting Charter would actually have 24 million customers to Comcast's 22 million...

I think it's COmcast's ownsership of NBC and that massive footprint that had the DOJ and FCC nervous.
KBode
KBode
5/27/2015 | 2:44:05 PM
Re: No shock
I think Altice sounds like it's interested in gobbling up the rest of the smaller players like Cox and Cablevision, assuming both companies don't ask for too much. Of course given that many people think Altice overpaid for Suddenlink, that may not be much of a problem.
steve q
steve q
5/26/2015 | 11:16:00 PM
Re: No shock
Maybe google will work with cox, I love to see how Verizon and the new AOL deal will work for those fios customer that like to use just the internet and not have to pay a high price for Tv.  Or there be somthing like what HBO did with apple given those customer that do not like to pay to watch Tv.
mhhf1ve
mhhf1ve
5/26/2015 | 9:06:49 PM
Will be #2 after Comcast... FCC approves
This certainly does "make all the sense in the world"  as Comcast points out -- and this deal is widely expected to be allowed because there is no monopoly issue here. The New Charter will be #2 after Comcast -- and it could provide Comcast more competition. 

Will Charter also get into the business of owning media properties? Verizon has AOL now. Does anyone think Charter has filled its merger appetite?
Ariella
Ariella
5/26/2015 | 4:20:24 PM
Re: Bubble boys
@mendyk yes, I got that. It's just interesting to see what does happen to brands and URLs. Even Radio Shack is supposed to be spared a complete demise from its deal with Sprint. As for revenue models, yes, short term doesn't cut it.
mendyk
mendyk
5/26/2015 | 4:17:31 PM
Re: Bubble boys
Well, nothing ever really dies on the Internet. But my point behind the snark is that it's hard to see why this "consolidation" is meaningful beyond the huge bonuses that the executives who engineer the deals will pull down. Aggregating businesses that essentially are based on revenue models that are likely to fall apart over the next decade doesn't seem all that interesting or exciting.
Ariella
Ariella
5/26/2015 | 4:12:15 PM
Re: Bubble boys
Pets.com is dead? I just had to test that out. I see the site redirects to Petsmart.
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