Charter Nears Deal to Acquire Time Warner Cable for $55.1 Billion

Charter Communications is closing in on an agreement to acquire Time Warner Cable in a deal valued at $55.1 billion in cash and stock, sources confirm.

The deal comes a month almost to the day that Comcast abandoned its bid to acquire TW Cable, the nation’s second-largest cable operator. And it comes nearly two years after Charter initiated an unsolicited takeover bid for TW Cable that quickly turned hostile, with Charter going so far as to propose an independent slate of directors for election at TW Cable’s 2014 board meeting.

Comcast’s stealth bid for TW Cable, unveiled in February 2014, thwarted Charter’s aggressive efforts. But from the moment Comcast withdrew its $45 billion bid on April 24, all eyes were on Charter’s next move. The St. Louis-based cable operator has the backing of John Malone’s Liberty Broadband, which owns a minority interest but is known to be the driving force behind the company’s growth strategy.

If the deal goes through, Charter would acquire TW Cable for $195 per share in cash and stock, according to Bloomberg News. TW Cable shares were up nearly 3.5% at close of trading Friday to $171.18, thanks to speculation about a deal coming together. Charter shares were down nearly 2% on Friday to close at $175.33.

Charter declined to comment. TW Cable could not immediately be reached for comment. The acquisition pact is expected to be unveiled early Tuesday.

Comcast’s 16-month battle to steer its proposed TW Cable merger through the regulatory approvals process became a referendum on the future of the Internet for a motley coalition of media watchdog groups and Comcast’s business competitions. Comcast ultimately withdrew its bid as it became clear that the FCC and Justice Department were digging in to block the transaction.

The combination of Charter and TW Cable is not seen as presenting any meaningful regulatory hurdles as the two would not come close to the market share that Comcast-TW Cable would have achieved. The death knell for Comcast’s bid was the high percentage of the U.S. broadband market that would have passed through its pipes. That was seen as concentrating too much market power in one company, particularly one that also has big investments in programming and entertainment through NBCUniversal.

Combined, Charter and TW Cable would reach about 23 million subscribers. The Comcast-TW Cable deal would have left the combined company with just under 30 million subscribers, and the ability to reach 30% to 50% (depending on who was doing the calculation) of the nation’s broadband users.

Charter also serves less desirable markets than Comcast, which has strongholds in urban Northeastern areas. TW Cable brings to Charter prized systems serving prime areas of New York City and Los Angeles, among other major cities. Charter’s systems are concentrated in the St. Louis and Detroit area, as well as in parts of Tennessee, Georgia, Wisconsin and North Carolina.

In late 2013 and early 2014, Charter and TW Cable openly sparred over Charter’s takeover bid. Charter was critical of TW Cable’s management for not investing more and doing more with its prime customer base. TW Cable accused Charter of making a “low ball offer” in an effort to grab the company on the cheap.

Based on the $195 per share pricetag reported by Bloomberg, Charter and the Malone camp have opened up their wallet big-time in an effort to get a deal done at last. TW Cable reported surprisingly solid first quarter earnings earlier this month despite the drama surrounding the failed merger effort.

Bloomberg reported that the Charter deal includes a $2 billion breakup fee, a sign that both sides are hedging for the possibility that other suitors enter the fray. Just last week, French telecom giant Altice unveiled a nearly $11 billion deal to buy a 70% stake Suddenlink, the seventh-ranked cable operator. There was speculation that Altice might also make a run at TW Cable.

Cablevision Systems, the No. 5 operator that serves highly desirable markets mostly on Long Island, is also believed to be in play amid the MVPD merger mania.

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