Charter agrees to buy Time Warner Cable for $55 billion

Charter Communications said today it plans to buy Time Warner Cable, clinching a deal made necessary by slowing growth in the U.S. cable industry — and more expensive by last-minute competition from French billionaire Patrick Drahi.

Charter will pay $195.71 a share — 14 percent above Time Warner Cable’s closing price on Friday – with either $100 or $115 in cash and the remainder in its own stock, according to a statement Tuesday. Bright House Networks, a smaller cable company that Charter has previously agreed to buy, will also be merged into the combined entity.

The deal would combine two of the largest cable operators in North Texas. In Tarrant County, Charter offers service in Fort Worth while Time Warner Cable serves communities including Arlington, Bedford, Colleyville, Dallas, Dalworthington Gardens, Euless, Grand Prairie and Grapevine.

It took Charter and its main shareholder John Malone more than a year to reach a deal with No. 2 Time Warner Cable after their January 2014 bid of $132.50-a-share was rejected as a “low-ball offer” and Comcast jumped in with a competing offer. Although Charter got another shot when regulatory scrutiny caused the Comcast deal to fall apart in April, talks were disrupted by Drahi’s Altice SA, which also approached Time Warner Cable in the past weeks.

“The idea that Time Warner Cable and Charter are merging isn’t a surprise, but the price raises some eyebrows,” said Craig Moffett, an analyst at MoffettNathanson in New York. “Altice undoubtedly contributed to Charter having to pay such a steep price to close the deal.”

Including debt, the transaction values Time Warner Cable at $78.7 billion. The deal enables Charter to almost quadruple its number of cable subscribers, gaining 12 million customers in cities including New York, Los Angeles and Dallas. The combined business will have about 17 million basic cable customers, second to Comcast’s 22 million.

To dispel concerns that cable mergers wouldn’t be approved by regulators after the Comcast-Time Warner Cable deal collapsed, Federal Communications Commission Chairman Tom Wheeler called Time Warner Cable Chief Executive Officer Rob Marcus and Charter CEO Tom Rutledge recently, a person with knowledge of the calls has said. Wheeler told the CEOs that any transaction would be judged on merit, and there was no flat ban on cable combinations, the person said.

Wheeler repeated those comments Tuesday in a statement, saying “the commission will look to see how American consumers would benefit if the deal were to be approved.”

Rutledge and Marcus said on a conference call that they were confident the deal would get approved.

Time Warner Cable shareholders who choose to receive $100 in cash will get 0.5409 Charter share. They can also elect to receive $115 in cash plus 0.4562 Charter share, the companies said.

The transaction is expected to be completed by the end of 2015, provided it gets regulatory approval.

Dealmaking has been heating up in an industry that faces waning demand for traditional pay-TV packages and competition from Netflix, Amazon and other online services. Although many analysts predicted a tie-up between Charter and Time Warner Cable, Drahi, a former protege of Malone’s, made a surprise foray into the U.S. on May 20 with the announcement of plans to buy a smaller provider, Suddenlink Communications. While in the country, he also met with Time Warner Cable CEO Marcus, according to a person with knowledge of the matter.

At $55 billion, Charter’s offer will be difficult to top for Altice, a Luxembourg-based company that has a market value of about 32 billion euros ($35 billion) and ballooning debt.

“It would be hard for Altice to structure a deal that would be as compelling for Time Warner Cables’ shareholders as a Charter deal,” said Moffett, the MoffettNathanson analyst.

Altice couldn’t immediately be reached for comment.

This story was originally published May 26, 2015 at 9:37 AM with the headline "Charter agrees to buy Time Warner Cable for $55 billion."