Despite its relatively small size, Bright House Networks may hold the fate of both Time Warner Cable and Charter Communications in its hands.
Bright House Networks , the sixth-largest US MSO with more than 2 million video customers, now seems to have emerged as the linchpin in the strategies of both Time Warner Cable Inc. (NYSE: TWC) and Charter Communications Inc. as those two bigger players resume their M&A dance. As the Wall Street Journal reported late yesterday, both large MSOs now appear to be wooing Bright House as part of their broader plans for cable fame and fortune.
Neither Time Warner Cable nor Bright House would comment on the latest reports before our deadline. But, on Charter's first-quarter earnings call this morning, CEO Tom Rutledge said his company is now "negotiating in good faith with Bright House," as required under its earlier $10.4 billion deal to acquire Bright House that was contingent on Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s now collapsed deal to buy TWC. Under that agreement, Charter and Bright House have 30 days to try to strike a new deal. (See Charter Snatches Bright House.)
Charter and TWC each have their own reasons for wanting the privately owned Bright House in their camps. For Charter, Bright House would provide more scale, a stronger balance sheet and greater borrowing capacity to make a presumably higher bid for TWC. It would also familiarize Charter officials with TWC-like operations because Bright House and Time Warner Cable, as former partners, have developed their cable systems in similar ways.
For Time Warner Cable, Bright House would make the large MSO even larger, harder and more complex to acquire if it still wishes to fend off Charter's advances and stay independent. As part of that move, TWC could also boost its debt level by borrowing money for a stock buyback, making it even tougher for the much smaller Charter to swallow it. Plus, if it can scoop up Bright House first, TWC would deny Charter the opportunity to beef up its capabilities for a new takeover bid.
Bright House offers both companies plenty of other enticements as well, including well-managed, upgraded cable systems, two large, attractive central Florida markets, strong WiFi assets and nearly $1 billion of business services operations. But, as enticing as all these benefits may be in normal times, they fade in comparison right now to the M&A-related benefits. (See Charter's Bright Idea: The Big Payoff.)
— Alan Breznick, Cable/Video Practice Leader, Light Reading