Charter Communications, Inc. (CHTR, Financial) will shortly reveal its decision to purchase Time Warner Cable Inc (TWC, Financial), according to inside sources. The deal will be valued at $55.1 billion in stock as well as cash. After the deal is through, Charter will have a chance to increase its number of cable subscribers tremendously, with an increase of almost 12 million subscribers in U.S. cities. Tom Rutledge, CEO of Charter Communications, said that it was looking to complete the transaction just how it was planned. His teams are ensuring that the transaction would go about smoothly, he said. Shares of Time Warner Cable closed at $171.18 before the holiday weekend, after news spread that Charter would take over.
Terms of takeover
According to the terms of the deal, Charter will shell out $195 for every share. This amount is almost 14% of the company's Friday's closing price.Time Warner Cable is valued at $48.4 billion currently. Out of the $195, $100 will be paid in cash. The remaining $95 will be given in stock. Investors of Time Warner Cable can also accept $115 a share and less Charter stock, if they wish. Though it has not confirmed yet, Bright House Networks may also be included in the combined identity. Charter has since long, set its eyes on purchasing Bright House Networks. The $55.1 billion is for Time Warner Cable equity and Charter would assume debt as well. Time Warner Cable will be paid $2 billion as a breakup fee if regulators block the deal.
Peer pressure
The merged entity will create tough competition from other players in the industry-Comcast Corporation (CMCSA, Financial) and DirecTV (DTV, Financial). However, a great deal of investment is made by Comcast so as to ensure viewers watch shows easily. Hence, it will take some time before the merged entity can actually create an impact. Nonetheless, it is estimated that around twenty million subscribers will be customers of the merged entity. Tom Rutledge will run the new company, people close to the matter have said.
It seems that Charter's dream to become a legitimate national player in the field will now come true. Months ago, Comcast had offered to purchase Time Warner Cable at a bid of $45 billion. Charter then went on to file a proxy statement with the Securities and Exchange Commission that left Time Warner Cable's shareholders no other choice but to reject the deal. However, given the significant turn of events, Charter finally managed to grab Time Warner Cable. The main force behind the deal is John C. Malone. He currently holds the post as a chairman at Liberty Media and has a 27% ownership stake in Charter. In the past, Mr. Malone has said that he was very pleased with the Connecticut-based company's market position as well as the growth opportunities.
Regulatory clearances
If the merger with Comcast would have gone through, government regulators would have raised issues of the merger being anti-competitive as internet access would be provided to a large number of homes. Now that Charter has secured the deal, it will have to undertake efforts to persuade the government that this deal is not like the rest. It could even prove that the combined entity could counterweight Comcast. Mike McCormack, an analyst at Jefferies said that regulatory approval is mostly likely to be obtained for this merger due to the “materially lower market share issues.” He also went on to say that the deal wouldn't create any vertical integration issues as such. Currently, federal officials are most likely to approve the takeover of DirecTV by AT&T Inc. (T, Financial) for a whopping $49 billion. Time Warner Cable has declined to comment on the deal. Charter Communications did not reply immediately after a comment was sought. In all probability, the deal will be officially announced Tuesday.
