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Charter to Acquire Bright House for $10.4 Billion, Creating Second-Biggest U.S. Cable Operator

Charter Communications plans to buy Bright House Networks in a deal worth $10.4 billion, a move that would result in the combined company becoming the No. 2 U.S. cable operator behind Comcast.

Charter’s bid for Bright House is the latest consolidation move in the pay-TV sector, with AT&T’s pending acquisition of DirecTV the other major deal in play — as distributors look to gain efficiencies and leverage against programming groups.

The deal comes after Charter lost its bid to acquire Time Warner Cable to Comcast in 2013. However, Charter, which counts John Malone’s Liberty Broadband as a major shareholder, is set to acquire systems from Comcast serving several million subscribers as part of a divestiture to pave the way for Comcast to obtain a regulatory OK for the TW Cable deal.

Charter is the nation’s fourth-largest MSO, with 4.3 million video customers, while Bright House is No. 6 with about 2 million video customers across five states. Under the complex, multiparty deal: About 1.6 million Charter video subs would be swapped to Comcast; 2.9 million TWC video customers would go to Charter; and Charter would service about 2.5 million subs from GreatLand Connections, the separate cable company formed last fall by Charter and Comcast (33% owned by Charter) to house the spinoff assets from the larger MSO.

All together, “New Charter” would have about 10.1 million customers.

“Bright House has built outstanding cable systems in attractive markets that are either complete, or contiguous with the New Charter footprint,” Tom Rutledge, president and CEO of Charter, said in announcing the pact. “This acquisition enhances our scale, and solidifies New Charter as the second-largest cable operator in the U.S.”

Bright House, owned by Advance/Newhouse, operates systems in central Florida, including in Orlando and Tampa Bay, as well as in Alabama, Indiana, Michigan and California.

The deal forming “New Charter” will be structured as a partnership, with Charter owning 73.7% and Advance/Newhouse owning 26.3%. Charter will pay $2 billion in cash with the remainder of the price tag in stock.

In addition, Liberty Broadband — the separate entity Liberty Media spun off last year, which largely comprises its stake in Charter — has agreed to purchase $700 million of newly issued New Charter shares, which would result in Liberty Broadband’s owning 19.4% of New Charter’s outstanding common shares. Under the deal, Advance/Newhouse has agreed to grant Liberty Broadband a voting proxy on its shares, capped at 6%, for five years after the deal closes — so that Liberty Broadband would end up with total voting power of 25.01%.

Once the deal closes, New Charter’s board will comprise 13 directors, including three designated by Advance/Newhouse and three picked by Liberty Broadband.

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