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Charter confirms $79bn Time Warner Cable deal

Charter Communications and Time Warner Cable have made a deal for Charter to merge with Time Warner Cable. The deal values Time Warner Cable at $78.7 billion including debt.

Charter will provide $100 in cash and shares of a new public parent company (New Charter) equivalent to 0.5409 shares of CHTR for each Time Warner Cable share outstanding. The deal values each Time Warner Cable share at approximately $195.71 based on Charter’s market closing price on May 20th, or approximately $200 based on Charter’s 60-trading day volume weighted average price.

The merger of Charter and Time Warner Cable, with other related deals, would create a company that controls more than 20 per cent of the US broadband market. Comcast walked away last month from a deal to buy Time Warner Cable for $45 billion, citing regulatory concerns.”Regulatory approval is no longer a given but we expect this is highly probable and greater than Comcast-Time Warner,” Macquarie Research analyst Amy Yong said.

The FCC was quick to comment on the deal. “The Commission will look to see how American consumers would benefit if the deal were to be approved,” Chairman Tom Wheeler said in a statement. “In applying the public interest test, an absence of harm is not sufficient.”

Meanwhile, Charter and Advance/Newhouse Partnership ( parent of Bright House Networks) announced that the two companies have amended the agreement which the two parties signed and announced on of March 31st 2015, whereby Charter will acquire Bright House Networks (Bright House) for $10.4 billion. That agreement, as amended, provides for Charter and Advance/Newhouse to form a new partnership (the Partnership) of which New Charter will own between approximately 86 per cent and 87 per cent and of which Advance/Newhouse will own between approximately 13 per cent and 14 per cent, depending on the Time Warner Cable shareholders’ cash election option described above.

The consideration to be paid to Advance/Newhouse by Charter will include common and convertible preferred units in the Partnership, in addition to $2 billion in cash. The common and convertible preferred partnership units will each be exchangeable into shares of New Charter. The Charter-Advance/Newhouse transaction is expected to close contemporaneously with the Charter-Time Warner Cable transaction.

Charter also announced that Liberty Broadband Corporation (Liberty Broadband) has agreed to purchase, upon closing of the Time Warner Cable transaction, $4.3 billion of newly issued shares of New Charter at a price equivalent to $176.95 per Charter share, which represents Charter’s closing price as of May 20, 2015. As previously-announced, Liberty Broadband will also purchase, upon closing of the Charter-Advance/Newhouse transaction, $700 million of newly issued Charter shares at a price equivalent to $173.00 per Charter share.

Following the close of both the Charter-Time Warner Cable and the Charter-Advance/Newhouse transactions, and depending on the outcome of the cash election feature offered in the Charter-Time Warner Cable transaction, Time Warner Cable shareholders, excluding Liberty Broadband and its affiliates, are expected to own between approximately 40 per cent and 44 per cent1 of New Charter, and Advance/Newhouse is expected to own between approximately 13 per cent and 14 per cent of New Charter. Liberty Broadband is expected to own between approximately 19 per cent and 20 per cent of New Charter.

The combination of Charter, Time Warner Cable and Bright House will create a leading broadband services and technology company serving 23.9 million customers in 41 states.

“The teams at Charter, Time Warner Cable and Bright House Networks are filled with the innovators of our industry. Representatives of each of these companies have invented some of the most revolutionary communications products ever created; innovations like video on demand, VOIP phone service, remote storage DVR, cable TV through an app, downloadable security and the first backward-compatible, cloud-based user interface. That spirit of innovation will live on, and it will create real benefits and great long-term value for the customers, shareholders and employees of all three companies,” said Tom Rutledge, President and CEO of Charter Communications. “With our larger reach, we will be able to accelerate the deployment of faster Internet speeds, state-of-the-art video experiences, and fully–featured voice products, at highly competitive prices. In addition, we will drive greater competition through further deployment of new competitive facilities-based WiFi networks in public places, and the expansion of the facilities footprint of optical networks to serve the large, small and medium sized business services marketplace. New Charter will capitalise on technology to create and maintain a more effective and efficient service model. 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.”

“With today’s announcement, we have delivered on our commitment to maximizing shareholder value,” said Robert D. Marcus, Chairman and CEO of Time Warner Cable. “This agreement recognises the unique value of Time Warner Cable, and brings together three great companies that share a common philosophy of strong operations, great products, robust network investment and putting customers first. This combination will only accelerate the great operating momentum we’ve seen over the last year and provide enormous opportunities for our 55,000 dedicated employees. We remain wholly committed to bringing the very best experience to our residential and business customers coast to coast.”

“Today’s announcement is good news for customers and potential customers, as well as our employees, since we will be in a stronger position to deliver competitive services, invest in advanced technology, and develop innovative products that will compete with global and national brands,” said Steve Miron, Chief Executive Officer of Bright House Networks. “In addition, I am very pleased that Tom Rutledge will be the CEO of the new company. Tom recognises the importance of placing a high priority focus on customer care drawing from the expertise of all three companies, and I believe this will be a strong pillar of the new company’s culture.”

New Charter will be led by Tom Rutledge, who will serve as President and CEO. Additionally, Rutledge will be offered a new five-year employment agreement. At the close of the transactions, New Charter’s Board of Directors will consist of 13 directors including Rutledge, who will be offered the position of Chairman. The remaining 12 directors will include seven independent directors nominated by the independent directors serving on Charter’s Board of Directors, two directors designated by Advance/Newhouse, and three directors designated by Liberty Broadband. Charter’s current Chairman since 2009, Eric Zinterhofer, will continue to serve on New Charter’s Board.

Confirmation of the deals comes a month after Comcast pulled its $45 billion bid for Time Warner Cable after failing to convince regulators that a deal that would have been beneficial to the US media and Internet landscape. The acquisition is more likely to clear regulatory hurdles than the aborted Time Warner Cable deal because the combined company would be far smaller.

After Charter Communications went public with an offer for Time Warner Cable worth $61 billion, Time Warner rejected it in mid-January 2014 as “grossly inadequate”.

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