MUMBAI: John Malone-controlled Charter Communications is acquiring Time Warner Cable for $55.3 billion. Along with the debt that Charter will inherit from Time Warner Cable, the deal is valued at $78.7 billion.
In addition, Charter confirmed that it will be acquiring Bright House Networks for $10.4 billion.
With these deals, Charter will become the second largest cable-and-Internet service provider in the US, with 24 million customers in 41 states. Comcast, which had earlier withdrawn from its bid to acquire Time Warner Cable due to regulatory hurdles, leads the pack with 27.2 million subscribers.
“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,” Charter CEO Tom Rutledge said in a statement.
Charter will provide $100 in cash and shares of a new public parent company (New Charter) equivalent to 0.5409 shares of Charter for each Time Warner Cable share outstanding.
Rutledge said, “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.”
Charter will provide an election option for each Time Warner Cable stockholder, other than Liberty Broadband Corporation or Liberty Interactive Corporation, who will receive all stock, to receive $115 of cash and New Charter shares equivalent to 0.4562 shares of Charter for each Time Warner Cable share they own.
Time Warner Cable chairman and CEO Robert D Marcus said, “With today’s announcement, we have delivered on our commitment to maximizing shareholder value. 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.”
The agreement, as amended, provides for Charter and Advance/Newhouse to form a new partnership of which New Charter will own between approximately 86-87 per cent and of which Advance/Newhouse will own between approximately 13-14 per cent, depending on the Time Warner Cable shareholders’ cash election option.
The Charter-Advance/Newhouse transaction is expected to close contemporaneously with the Charter-Time Warner Cable transaction.
Charter also announced that Liberty Broadband Corporation 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. 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 approximately 40-44 per cent of New Charter, and Advance/Newhouse is expected to own between approximately 13-14 per cent of New Charter.
Liberty Broadband is expected to own between approximately 19-20 per cent of New Charter.
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.
Bright House Networks CEO Steve Miron stated, “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. In addition, I am very pleased that Tom Rutledge will be the CEO of the new company. Tom recognizes 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.”
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 announced transactions will drive investment into the combined entity’s advanced broadband network, allow for wider deployment of new competitive facilities based WiFi networks in public places and the footprint expansion of optical networks to serve the large marketplace of small and medium sized businesses.
A statement mentions that this will result in faster broadband speeds, better video products, including more high definition channels, more affordable phone service and more competition, for consumers and businesses.
The scale of the new entity will also result in greater product innovation, bringing new and advanced services to consumers and businesses, including Charter’s Spectrum Guide and World Box and other product innovations.
“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 capitalize on technology to create and maintain a more effective and efficient service model,” Rutledge added.
Pursuant to the agreement, New Charter will contribute substantially all of its assets into the partnership, and Advance/Newhouse will contribute all of Bright House’s assets.
Upon closing of the transaction, a new shareholder’s agreement with Advance/Newhouse and Liberty Broadband will become effective. Under the new agreement, Advance/Newhouse and Liberty Broadband will be granted pre-emptive rights, allowing each to maintain their pro rata ownership in New Charter.
The Charter-Time Warner Cable transaction is subject to approval by Charter and Time Warner Cable shareholders, regulatory review and other customary conditions. The Charter-Advance/Newhouse transaction is subject to several conditions, including the completion of the Time Warner Cable acquisition and a separate vote on the Liberty transactions, and regulatory approval. The three companies expect to close the announced transactions by the end of 2015.
Goldman Sachs and LionTree Advisors are serving as lead financial advisors to Charter in connection with the Time Warner Cable and Bright House transaction. Guggenheim Securities is also a financial advisor to Charter. BofA Merrill Lynch and Credit Suisse are also financial advisors to Charter and together with Goldman Sachs and UBS Investment Bank, are leading the financing for the transaction. The law firms Wachtell, Lipton, Rosen & Katz is counsel to Charter and Kirkland & Ellis LLP is representing Charter as financing counsel.
Morgan Stanley, Allen & Company, Citigroup and Centerview Partners are financial advisors to Time Warner Cable and its Board of Directors and Paul, Weiss, Rifkind, Wharton & Garrison LLP, Latham & Watkins LLP and Skadden, Arps, Slate, Meagher & Flom LLP are legal advisors.
UBS Investment Bank is serving as exclusive financial advisor to Advance/Newhouse Partnership and Bright House Networks LLC, and Sabin, Bermant & Gould LLP and Sullivan & Cromwell LLP are acting as legal advisors.