Television and the cable network industry are lucrative fosr investors, given their sustained boom. But what seems to be trumpeting the cable market is the new favorite on the block, the internet. Everyone wants a share of the pie, and the larger the share, the bigger the profit. It is not surprising that your favorite sports channel ESPN was hardly the deciding factor in the $55.1 billion deal by Charter Communications Inc. (CHTR, Financial) to take over Time Warner Cable Inc. (TWC, Financial) reaching the final stages, according to news reports.
All these details are confidential since the negotiations are being played close to the chest. However, some say that the official announcement will come forth in a couple of days as the deal is almost done. However, Charter being the fourth-biggest U.S. company readying to take over the second largest has got the FCC on its toes. If the merger finally succeeds, along with another smaller company, Charter will own almost 24% of the broadband market.
Charter’s offer a sweetheart deal
In what seems to be a surprise evaluation, Charter is ready to shell out about $195 a share, which is roughly 14% more than the closing price of Time Warner Cable on May 22. Charter will then settle the rest with $100 cash and with its own shares. Charter has been keen to buy the Time Warner cable since early 2014 when it lost out to Comcast Corp (CMCSA, Financial). However, eventually the deal fell through at the final stages due to concerns raised by regulatory agencies in the U.S. The sudden drive to sweeten and secure the deal by Charter seems to have come from the sudden interest shown by French billionaire Patrick Drahi who is trying to buy up small operators in the U.S. The recent competition from Drahi's Altice SA (ATCEY, Financial) may have worried Charter about losing out a second time.
It was way back in 2013 that billionaire John Malone said that Charter will be his acquisition wing. Although the plain was derailed in between, Malone now is set to steal the deal, after starting its bid almost a year back. The company is also trying to buy Bright House Networks, a smaller cable company that will eventually be merged all together, according to analysts.
Investors upbeat about this merger
The Federal Communications Commission chairman Tom Wheeler had said that the merger between Comcast and TWC “would have posed an unacceptable risk to competition,” probably taking into account the threat to the development of online video services. The new merger will have a consumer base of almost 50 percent of households with broadband connection. Moreover, a Charter-TWC-Bright House alliance would then have 20 million broadband customers all over which translate into 24% of the market share. This deal will now have to overcome scrutiny of the FCC to be finalised.
The market is optimistic about the FCC nod because it was Wheeler himself who contacted both Time Warner Cable CEO Rob Marcus and Charter CEO Tom Rutledge to convey to them that the agency is open to other cable deals which are not only free of threat but in fact actively benefits the public. In a statement on Tuesday, Wheeler said, “In applying the public interest test, an absence of harm is not sufficient.” Once the FCC ratifies it, and the papers are signed, the U.S. will have a new major player in the cable and broadband industry. At the third position in the U.S., with a sizeable portion of the broadband market share, Charter is sure to chart out a success story.
