John Malone’s Charter Communications has agreed to buy larger rival Time Warner Cable (TWC) for US$56bn. Charter has also agreed to buy smaller player Bright House Networks for US$10.4bn.
The cash-and-stock TWC deal values the second-largest US…
John Malone’s Charter Communications has agreed to buy larger rival Time Warner Cable (TWC) for US$56bn. Charter has also agreed to buy smaller player Bright House Networks for US$10.4bn.
The cash-and-stock TWC deal values the second-largest US cableco’s shares at US$195.71, giving it an enterprise value of US$78.7bn, Charter said in statement today. This represents a 14% premium on TWC’s closing share price on Friday.
The price tag implies a transaction multiple of 8.5x before synergies. New Street Research analyst Jonathan Chaplin said in an investor note.
“The price paid suggests that Malone and Rutledge share our view that US cable multiples in general are too low.”
TWC shareholders can opt to receive either US$100 in cash and shares in a new parent company equal to 0.5409 Charter shares, or US$115 in cash and new company shares equal to 0.4562 Charter shares.
The new enlarged company, New Charter, will be headed by Charter’s current president and CEO Tom Rutledge.
The three-way merger would create a broadband and technology company with 23.9 million customers in 41 states, Charter said.
Rutledge commented: “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.”
TWC chairman and CEO Robert Marcus said the agreement recognised his company’s “unique value” and brings it together with two others that “share a common philosophy of strong operations, great products, robust network investment and putting customers first”.
Charter’s lead financial advisors for the TWC deal are Goldman Sachs and LionTree Advisors, while Guggenheim Securities, BofA Merrill Lynch and Credit Suisse are also providing financial advice. On the financing side are BofA Merrill Lynch, Credit Suisse, Goldman Sachs and UBS. Watchell, Lipton, Rosen & Katz are providing legal counsel, while Kirkland & Ellis are providing financial counsel.
TWC’s financial advisors are Morgan Stanley, Allen & Company, Citigroup and Centerview Partners. Its legal advisors are Paul, Weiss, Rifkind, Wharton & Garrison; Latham & Watkins; and Skadden, Arps, Slate, Meagher & Flom.
News of the planned merger will no doubt come as a disappointment to Luxembourg-based telecoms group Altice, which was reportedly also in talks with TWC about a potential acquisition. Patrick Drahi’s Luxembourg-based company entered the US cable market last week with the US$9.1bn purchase of a controlling stake in Suddenlink, with plans to take part in market consolidation.
Bright House deal
Charter will also go through with its earlier deal to acquire Bright House Networks for US$10.4bn, originally contingent on the Comcast-TWC merger. That deal was abandoned last month following regulatory resistance.
The amended agreement would result in a partnership between Charter and Advance/Newhouse, the current owner of Bright House. New Charter would own 86%-87% of this partnership with Advance/Newhouse holding the rest, depending on TWC shareholders’ cash election options.
Charter would pay Advance/Newhouse US$2bn cash, US$5.9bn in exchangeable common units in the partnership, and US$2.5bn in convertible units in the partnership with a 6% coupon. Both common and convertible units may be exchanged into New Charter shares.
Goldman Sachs and Lion Tree are serving as Charter’s financial advisors on the Bright House deal. Watchell, Lipton, Rosen and Katz is providing legal counsel, and Kirkland & Ellis is providing financial counsel.
Advance/Newhouse and Bright House’s exclusive financial advisor on the deal is UBS, while their legal advisors are Sabin, Bermant & Gould and Sullivan & Cromwell.
Liberty Broadband to take stake in enlarged company
Liberty Broadband, Charter’s second-largest shareholder, has agreed to buy US$4.3bn of new shares in New Charter when the TWC deal closes.
As previously announced, Liberty Broadband, controlled by John Malone, would also buy US$700m of new shares in Charter upon closure of the Bright House deal.
Liberty Broadband would own about a fifth of New Charter upon completion.
The Charter-TWC deal is subject to shareholder and regulatory approvals, while the Bright House deal is subject to the completion of the TWC purchase, with certain exceptions, a separate vote on the Liberty transactions and regulatory approvals.
The Charter-TWC deal will undoubtedly face strict regulatory scrutiny, although FCC chairman Tom Wheeler reportedly recently told cable CEOs that the watchdog’s opposition to Comcast-TWC did not mean it was against all cable deals.
