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 The transaction would make Charter, which lost out to Comcast in a
bid to acquire Time Warner Cable, the second-largest cable provider
in the United States.
The agreement would leave Comcast with less than 30 percent of the
U.S. residential cable or satellite TV market, a factor seen as a
key step to pleasing regulators. Charter would have about 6 percent
of the pay-TV market, with an eventual shot to climb to 9 percent.
Under the deal, Charter would pay Comcast $7.3 billion for 1.4
million subscribers. Comcast would divest another 2.5 million
subscribers into a new publicly traded company that would be
two-thirds owned by Comcast shareholders and one-third owned by
Charter.
In addition, Comcast and Charter would trade about 1.6 million
subscribers in different parts of the country.
"For Charter, this deal is a transformative event and sets them up
over time to consolidate the balance of the rest of the cable
industry," Pivotal Research Group analyst Jeff Wlodarczak told
Reuters, adding that the deal was good for both parties.
Comcast is awaiting approval by the U.S. Justice Department and the
U.S. Federal Communications Commission to take over Time Warner
Cable, something that likely will take many months and could impact
the future of cable and broadband.
Charter's shares were up almost 8 percent at $139.90 in mid-morning
trading while Comcast shares were up 1.4 percent at $51.70.
Under the deal for the new company, Charter would manage the
as-yet-to-be named company and Charter CEO Tom Rutledge would become
its chairman.
The company would have an estimated enterprise value of $14.3
billion and an equity value of $5.8 billion, Charter and Comcast
said in an investor presentation. (http://r.reuters.com/vyd88v)
A person familiar with the deal said there was a standstill
agreement with Charter stipulating that it cannot gain full control
of the new company for four years. Comcast will have no ownership.
The entire deal with Charter is contingent on Comcast closing the
Time Warner Cable acquisition.
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MORE CLOUT FOR MALONE
If the agreement with Comcast goes through, Charter would leapfrog
Cox Communications Inc and become the second-biggest U.S. pay TV
company, with 5.7 million customers.
The deal also marks an acceleration of John Malone's effective
return to cable through his investment vehicle Liberty Media Corp,
which owns about 27 percent of Charter.
Liberty Media got involved in working with Comcast but Charter did
the nuts and bolts of the deal, the person familiar with the matter
said.
In addition to the divestments, which will deliver about $19.5
billion in value to Comcast shareholders.
Under the agreement to swap about 1.6 million customers, Charter
will acquire systems in Ohio, Kentucky, Wisconsin, Indiana and
Alabama, while Comcast will get parts of the Los Angeles, New York
state, western Massachusetts, North Carolina South Carolina, and
parts of the Texas and Georgia markets.
The new company will get the Detroit and Minneapolis-St. Paul
markets.
Time Warner Cable had 11.2 million residential video subscribers as
of March 31, while Comcast had 22.6 million.
Charter, which also reported better-than-expected first-quarter
revenue, said it expected to fund the purchase of 1.4 million
customers through debt.
Time Warner Cable shares were up 1 percent at $141.01.
(Additional reporting by Abhirup Roy and Sruthi Ramakrishnan in
Bangalore; editing by Saumyadeb Chakrabarty and Leslie Adler)
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