Charter-Time Warner would be 3rd-largest U.S. pay-TV service

$56.7 billion deal expected to clear regulatory hurdles

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Charter Communications has reeled in its big prize, agreeing to purchase Time Warner Cable in a blockbuster deal that would make it the third-largest pay-TV provider in the nation.

The long-sought-after acquisition, announced early Tuesday, values Time Warner Cable at $56.7 billion. Charter also is planning to purchase Bright House Networks, a smaller cable provider, producing a new company with more than 20 million pay TV, Internet and phone subscribers in 41 states.

The deal will need federal and state government approval. However, it is considered more likely to clear regulatory hurdles than Comcast Corp.’s recently scuttled purchase of Time Warner Cable.

That’s partly because the combined company would be smaller than the proposed merger of Comcast and Time Warner Cable.

Tom Wheeler, chairman of the Federal Communications Commission, said Tuesday his agency must review every telecommunications merger to determine “whether it would be in the public interest.”

“In applying the public interest test, an absence of harm is not sufficient,” he said. “The commission will look to see how American consumers would benefit if the deal were to be approved.”

Charter, backed by cable pioneer John Malone’s Liberty Media Corp., had previously structured a $10.4 billion deal to purchase the privately held Bright House Networks, which has more than 2 million subscribers.

The flurry of high-profile deals delivers on Charter’s ambitions to quickly transform itself into one of the nation’s most powerful Internet service and cable TV providers. The move also represents a triumph for Malone, who was a key architect of the cable TV industry as it consolidated in the 1990s.

The Colorado billionaire has kept his eye on Time Warner Cable for the last two years. It first appeared that Malone and Charter had been outmaneuvered by their longtime rivals at Comcast, but when that deal collapsed last month, Charter quickly swooped in.

With the Time Warner Cable and Bright House subscribers added to the mix, Charter would wield considerable clout — including more than 19 million high-speed Internet customers nationwide, 17.3 million cable TV customers, and a growing portfolio of commercial customers who sign up for phone and Internet service.

“Put simply, the scale of New Charter, along with the combined talents we can bring to bear, position us to deliver a communications future that will unleash the full power of the two-way, interactive cable network,” Charter Chief Executive Tom Rutledge, who will run the consolidated company, said in a statement.

If the deal is approved, Charter would trail the proposed combination of AT&T and DirecTV — a deal that is waiting final approval from federal regulators — as well as Comcast, which would become the second-largest pay-TV provider.

“I’m confident that our proposed transaction will gain the approval of federal regulators,” Rutledge told analysts during an early-morning conference call.

The cash-and-stock deal values Time Warner Cable at $195.71 a share, significantly higher than its $171.18-a-share closing price on Wall Street on Friday.

“With today’s announcement, we have delivered on our commitment to maximizing shareholder value,” Time Warner Cable Chief Executive Robert D. Marcus said in a statement.

The deal requires Charter to pay at least $56.7 billion for Time Warner Cable’s outstanding shares. Charter also would assume Time Warner Cable’s $22 billion in debt, bringing the total amount to $78.7 billion. The transaction would be highly leveraged, requiring Charter to secure financing of about $30 billion. To help with the financing, Liberty has agreed to spend as much as $5 billion to buy shares in the new Charter.

Charter and Time Warner Cable executives began negotiating the proposed merger soon after federal regulators signaled in late April that they would seek to block Comcast’s attempted $45 billion takeover of Time Warner Cable.

“Compared to the Comcast deal, I don’t think this one is likely to face nearly as much resistance,” Gene Kimmelman, president and chief executive of the public interest group Public Knowledge, said in a phone interview Monday after news of the deal leaked out.

“This proposed merger isn’t nearly as big. … But there still will be important issues for the FCC to consider,” Kimmelman said.

At the end of last year, Stamford, Conn.-based Charter had 6.2 million customers that opted for its Internet service, phone service or cable TV packages, or a combination of the three. It currently ranks as the nation’s fourth-largest cable operator.

Time Warner Cable is much bigger. The nation’s second-largest cable TV provider has more than 11 million customers nationwide, including 1.5 million customers in Southern California.

Charter is hoping to complete the merger by the end of the year. The combination also would give Charter a commanding presence in the New York, Dallas, Tampa, Fla., Orlando, Fla., and Cleveland markets.