Charter Communications said Tuesday it's buying Time Warner Cable valued at about $79 billion, forging ahead with its theory that gaining more customers would provide the leverage it needs to grow in the turbulent pay-TV industry.
Controlled by billionaire industry legend John Malone, Charter is making its boldest move yet to pursue a company that is much larger in revenue and market share, merely weeks after Comcast failed in its bid to buy Time Warner Cable. Charger also sought to buy Time Warner Cable at a lower price last year, only to be outbid by Comcast.
Charter will pay $195.71 per share in the cash-and-stock deal — $100 of it in cash with the rest in Charter shares. The offer is based on Charter's 60-trading day volume weighted average price.
Charter, which is based in Stamford, Conn., also confirmed it's proceeding with an earlier proposal to buy Bright House Networks, a smaller cable company, for $10.4 billion. With the three companies integrated, Charter would become the second largest TV-and-Internet provider in the U.S. with about 23 million customer accounts, trailing only Comcast's 27.2 million.
Malone, who's the chairman of the company that owns about 25% of Charter, Liberty Media, has been itching for a deal. In Time Warner Cable, he sees a company that has a sizable market share and services in key U.S. markets, including New York, Los Angeles and Dallas.
Broadening its presence nationally would theoretically empower Charter to call for better pricing for content from cable networks and broadcasters and insist on certain digital rights for streaming and on-demand video. Pay-TV providers are hoping to retain their viability in the increasingly streaming world with compelling content, including live sports, and TV-everywhere capabilities that might discourage cord-cutting customers.
The rapid changes brought on by the changing video technology also prompted Comcast to offer $45.2 billion last year to buy Time Warner Cable. But last month, Comcast ended its pursuit after federal regulators expressed anti-trust concerns and made moves that foreshadowed their likely rejection.
Meanwhile, AT&T has an agreement to buy DirecTV for $48.5 billion, a deal that analysts expect to be approved. Last week, Altice, the Luxembourg-based telecom company controlled by billionaire Patrick Drahi, said it's entering the U.S. market by buying cable operator Suddenlink Communications for about $9.1 billion.
Charter pitched a series of escalating bids to buy Time Warner Cable during 2013 to 2014. Time Warner Cable's board rejected Charter's sweetened offer of about $61 billion in cash, stock and debt assumption in January 2014. The board characterized the offer as a "third grossly inadequate proposal," prompting Comcast to enter the bidding and trumping Charter with its offer.
Asked at an investor conference in November whether he would consider a new effort to buy Time Warner Cable if the Comcast deal were rejected, Malone replied, "Hell, yes."
Charter also may have been motivated to strike its aggressive deal by a possible competitor. While Altice's Drahi was in the U.S. to wrap up the Suddenlink deal, he met with Time Warner Cable CEO Rob Marcus for a possible merger, Bloomberg News reported last week.
In an investor note Monday, Mike McCormack, an analyst at Jefferies, wrote that Charter will have an easier time selling its merger proposal than Comcast given that the combined company would have a lower market share. That Charter doesn't own content providers also may work in its favor, he said. Comcast owns NBCUniversal and federal regulators worried that the nation's largest cable company may favor its subsidiary's content over NBC's competitors.
"We believe that this transaction will likely gain regulatory approval," McCormack said. "The combined company is still smaller than (Comcast) and there are no vertical integration issues."
Still, the deal will also under go a review by regulators, including the Federal Communications Commission, and uncertainties will linger. If Charter's proposal falls through, Time Warner Cable will receive $2 billion in breakup fee.
