Charter and Time Warner Cable Merging in $78.7 Billion Dollar Deal

[dgstorm]

Charter Communications is swooping in to take advantage of the failed merger between Time Warner and Comcast. The company just announced a merger that will see Time Warner Cable absorbed by Charter for a massive $78.7 Billion dollar payout.

We have included the full press release in the thread below for all of the details. Here at HQ, we aren't at all surprised by this. Most of the industry expected this to happen, but the monetary sum is much higher than expected (and quite a bit more that the $45 Billion deal that failed between TWC and Comcast. What do you guys think? Will this one pass the Governmental & consumer muster, or is it doomed to fail too?

 

[dgstorm]

Here's the full press release from Charter on their merger with Time Warner Cable:

Charter Communications to Merge with Time Warner Cable and Acquire Bright House Networks

STAMFORD, Conn., NEW YORK and SYRACUSE, N.Y., May 26, 2015 /PRNewswire/ — Charter Communications, Inc. CHTR, +3.80%(together with its subsidiaries “Charter”) and Time Warner Cable Inc.TWC, +8.69% today announced that they have entered into a definitive agreement for Charter to merge with Time Warner Cable. The deal values Time Warner Cable at $78.7 billion. Charter will provide $100.00 in cash and shares of a new public parent company (“New Charter”) equivalent to 0.5409 shares of CHTR for each Time Warner Cable share outstanding. The deal values each Time Warner Cable share at approximately $195.71 based on Charter’s market closing price on May 20, or approximately $200 based on Charter’s 60-trading day volume weighted average price. In addition, Charter will provide an election option for each Time Warner Cable stockholder, other than Liberty Broadband Corporation (“Liberty Broadband”) or Liberty Interactive Corporation, who will receive all stock, to receive $115.00 of cash and New Charter shares equivalent to 0.4562 shares of CHTR for each Time Warner Cable share they own.

In addition, Charter and Advance/Newhouse Partnership (a parent of Bright House Networks, LLC) today announced that the two companies have amended the agreement which the two parties signed and announced on March 31, 2015, whereby Charter will acquire Bright House Networks (“Bright House”) for $10.4 billion. That agreement, as amended, provides for Charter and Advance/Newhouse to form a new partnership (the “Partnership”) of which New Charter will own between approximately 86% and 87% and of which Advance/Newhouse will own between approximately 13% and 14%, depending on the Time Warner Cable shareholders’ cash election option described above. The consideration to be paid to Advance/Newhouse by Charter will include common and convertible preferred units in the Partnership, in addition to $2 billion in cash. The common and convertible preferred partnership units will each be exchangeable into shares of New Charter. The Charter-Advance/Newhouse transaction is expected to close contemporaneously with the Charter-Time Warner Cable transaction.

Charter also announced today that Liberty Broadband Corporation (“Liberty Broadband”) 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, which represents Charter’s closing price as of May 20, 2015. As previously-announced, 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 between approximately 40% and 44%1 of New Charter, and Advance/Newhouse is expected to own between approximately 13% and 14% of New Charter. Liberty Broadband is expected to own between approximately 19% and 20% of New Charter.

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. 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. And Charter’s commitment to superior products and outstanding customer service, and its strategy of investing in insourcing and returning offshore jobs to America, will not only benefit the combined companies’ customers, but will also enhance opportunities for employees of the new company.

“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,” said Tom Rutledge, President and CEO of Charter Communications. “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. 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.”

“With today’s announcement, we have delivered on our commitment to maximizing shareholder value,” said Robert D. Marcus, Chairman and CEO of Time Warner Cable. “This agreement recognizes the unique value of Time Warner Cable, and brings together three great companies that share a common philosophy of strong operations, great products, robust network investment and putting customers first. 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.”

“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,” said Steve Miron, Chief Executive Officer of Bright House Networks. “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.”

New Charter will be led by Tom Rutledge, who will serve as President and CEO. Additionally, Mr. 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 Mr. 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.

Pursuant to the agreement between Charter and Advance/Newhouse, Charter and Advance/Newhouse will form the Partnership utilizing an existing subsidiary of Charter Communications Holding Company, LLC, a subsidiary of Charter. New Charter, which will include Time Warner Cable, will contribute substantially all of its assets into the Partnership, and Advance/Newhouse will contribute all of Bright House’s assets into the Partnership. In exchange for its contribution, Advance/Newhouse will receive $5.9 billion of exchangeable common partnership units, and $2.5 billion of convertible preferred partnership units which will pay a 6% coupon. The common and convertible preferred partnership units will each be exchangeable into New Charter Class A common stock, with 34.3 million common units priced at $173.00 (the “Reference Price”) per share, as previously announced. The 10.3 million preferred partnership units will be convertible at $242.19, a 40% premium to the Reference Price. Advance/Newhouse will also receive $2 billion in cash and will receive governance rights reflecting its economic ownership in the partnership through a new class of shares at New Charter.

Upon closing of the Charter-Advance/Newhouse transaction, a new shareholder’s agreement (the “Shareholder’s Agreement”) with Advance/Newhouse and Liberty Broadband will become effective. Under the new agreement, Advance/Newhouse and Liberty Broadband will be granted preemptive rights, allowing each to maintain their pro rata ownership in New Charter. The Shareholder’s Agreement also provides for voting caps and required participation in buybacks at specified acquisition caps, and stipulates transfer restrictions among other shareholder governance matters. In connection with the Charter-Advance/Newhouse transaction as amended, Advance/Newhouse has agreed to grant Liberty Broadband a voting proxy on its shares, capped at 7%, for the five years following the close of the transaction, such that Liberty Broadband would have total voting power of approximately 25% at closing. The proxy excludes votes on certain matters.

The Charter-Time Warner Cable transaction is subject to approval by both 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 (subject to certain exceptions if Time Warner Cable enters into another sale transaction) 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 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.

Goldman Sachs and LionTree Advisors are serving as financial advisors to Charter in connection with the Bright House transaction. Wachtell, Lipton, Rosen & Katz is acting as counsel to Charter and Kirkland & Ellis LLP is advising Charter on financing.

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.

 

[Powarun]

How about no.

 

[johnomaz]

charter got rid of data caps, they plan on bringing out 300/50 internet speeds (100/25 minimum for basic plan). I don't want any TWC trash in a so far good company.

 

[Jonny Kansas]

As a Charter customer, I'm definitely interested to see what this brings about. When they doubled our internet speeds, they didn't charge any more. I was impressed by that. I was unaware that they'd dropped caps until just now. When they were in the process of upgrading the network in our area, my internet slowed to a crawl for a few days and I found info on the cap at that time (I was nowhere near the top of it).

As others have stated, having heard TWC horror stories, I'm not sure that I'm looking forward to the change, but hopefully the heads at Charter will stay the course that they've already set and bring TWC in-line with the way they've operated thus far.

I still pay them an arm and a leg, but I don't feel like I'm being screwed over by them left and right like customers of other companies have expressed on this forum and elsewhere.

 

[Amagine]

Understanding how each of these companies handle their Infrastructure, I have to say this could be interesting. While the comcast/TWC merger was going to be a train wreck from a consumer stand point. This one kind of looks like the cable version of the Sprint/ Nextel deal back in the day.
Charter is pretty good about keeping up to date on their infrastructure, but they aren't terribly efficient at managing their network. For years their network was pretty much just cobbled together and overly redundant. While they are decent at Break/Fix issues, expansion is going to be tricky. That's the probably why they went after TWC. It was going to be just as costly either way. TWC was a ready made package.
TWC is just an infrastructure nightmare. They are essentially what Charter was 10 years ago. Big network spliced together the quickest way possible for revenue synergies without the forward thinking of how to maintain it. I fear that Charter may find itself in a pickle of how to get the TWC network in line with the Charter network. TWC had a hell of a time absorbing Insight Communications.

Naturally revenue and A/P will quickly be converted over. But I doubt those in TWC coverage areas seen major changes very soon. Probably 3 years minimum on the integration, least on the broadband side. Cable/Video probably quicker.

 

[akhenax]

I would prefer if Internet was like a Utility, where I could get my Internet from anyone I wanted to. Whoever has the best price wins!

No need for independent lines coming into my house. My cable lines work just fine.

 

[Amagine]

I would prefer if Internet was like a Utility, where I could get my Internet from anyone I wanted to. Whoever has the best price wins!

No need for independent lines coming into my house. My cable lines work just fine.

It cracks me up when this comes up. Unfortunately, unlike the dial up days. That's not how broadband works. However, I do wish that the "last mile plant" was utilized. Granted, if you did that, customer install rates would go through the roof as the company has to recover that cost somehow.

Also to be fair. Most areas of the country, don't have a true "Utility" set up with even their basic Water/Power utilities anymore. Most have one maybe two utilities serving a certain area and

 

[Amagine]

The area, I wish the FCC would focus its neutrality efforts would be in the wireless realm. Somehow dictating that US market phones had to be capable of being unlocked and moved from carrier to carrier. Including those packaged for Verizon.

 

[akhenax]

Well, I have TWC now. Why can't Optimum lease from TWC, and I pay Optimum for their Internet services. If this was mandated by the government, for example a fair lease price for the network's infrastructure, it would be doable.

Then I could see this being expanded to Wireless carriers. What if I could use Verizon's network LTE, and pay T-Mobile prices? Of course lobbying would prevent this utopian design, but I can still dream.

 

[akhenax]

The area, I wish the FCC would focus its neutrality efforts would be in the wireless realm. Somehow dictating that US market phones had to be capable of being unlocked and moved from carrier to carrier. Including those packaged for Verizon.

If my phone could be unlocked and work on any carrier, including Verizon or Sprint, that would be a "happy day". Why manufacturers don't just make World/Global phones is beyond me.

 

[Amagine]

If my phone could be unlocked and work on any carrier, including Verizon or Sprint, that would be a "happy day". Why manufacturers don't just make World/Global phones is beyond me.

Design costs. Many do create these phones, but they are locked out of Verizon's ecosystem

 

[dgstorm]

Understanding how each of these companies handle their Infrastructure, I have to say this could be interesting. While the comcast/TWC merger was going to be a train wreck from a consumer stand point. This one kind of looks like the cable version of the Sprint/ Nextel deal back in the day.
Charter is pretty good about keeping up to date on their infrastructure, but they aren't terribly efficient at managing their network. For years their network was pretty much just cobbled together and overly redundant. While they are decent at Break/Fix issues, expansion is going to be tricky. That's the probably why they went after TWC. It was going to be just as costly either way. TWC was a ready made package.
TWC is just an infrastructure nightmare. They are essentially what Charter was 10 years ago. Big network spliced together the quickest way possible for revenue synergies without the forward thinking of how to maintain it. I fear that Charter may find itself in a pickle of how to get the TWC network in line with the Charter network. TWC had a hell of a time absorbing Insight Communications.

Naturally revenue and A/P will quickly be converted over. But I doubt those in TWC coverage areas seen major changes very soon. Probably 3 years minimum on the integration, least on the broadband side. Cable/Video probably quicker.

Very well reasoned post! Great points.

 

[Amagine]

Well, I have TWC now. Why can't Optimum lease from TWC, and I pay Optimum for their Internet services. If this was mandated by the government, for example a fair lease price for the network's infrastructure, it would be doable.

Then I could see this being expanded to Wireless carriers. What if I could use Verizon's network LTE, and pay T-Mobile prices? Of course lobbying would prevent this utopian design, but I can still dream.

They do. all the time. Only on a physical scale. Buying fibers in TWC's plant or buying high level circuits from one exchange to another.
However, Virtualizing the broadband market like you see in the wireless market (a la Virgin Mobile, Google Fi) is very clumbersome. Just because of the technology involved. Plus, you would likely end up paying more even if company XYZ could lease bandwidth in your area, somehow authenticate its equipment through the incumbent's routers and onto company XYZ. Because not only is the incumbent responsible for their customers but also company XYZ and by letting XYZ on their plant, unless XYZ agrees to pay some sort of % of repairs to the network.

 

[johnomaz]

As a Charter customer, I'm definitely interested to see what this brings about. When they doubled our internet speeds, they didn't charge any more. I was impressed by that. I was unaware that they'd dropped caps until just now. When they were in the process of upgrading the network in our area, my internet slowed to a crawl for a few days and I found info on the cap at that time (I was nowhere near the top of it).

As others have stated, having heard TWC horror stories, I'm not sure that I'm looking forward to the change, but hopefully the heads at Charter will stay the course that they've already set and bring TWC in-line with the way they've operated thus far.

I still pay them an arm and a leg, but I don't feel like I'm being screwed over by them left and right like customers of other companies have expressed on this forum and elsewhere.

Charter Communications Quietly Eliminates Usage Caps That Were Rarely Enforced Anyway Stop the Cap