Charter Communications plans to buy Time Warner Cable and Bright House Networks, with the hopes that the blockbuster three-way deal will be approved by regulators — who earlier this month rejected Comcast’s deal for Time Warner.
“With our larger reach, we will be able to accelerate the deployment of faster Internet speeds, state-of-the-art video experiences, and voice products, at highly competitive prices,” Charter president and chief executive Tom Rutledge said in a press release. “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-size business services marketplace.”
A CNN Money story said that Stamford, Conn.-based Charter’s deal for Time Warner contains some of the same rationales that underpinned Comcast’s bid for Time Warner that was rejected earlier this month by the Federal Communications Commission.
“Why does Charter believe it’ll win governmental approval when Comcast could not?” CNN Money wrote. “Partly because it’s not Comcast — it’s not already No. 1 in the industry and it doesn’t own lots of cable channels the way Comcast does.”
FCC chairman Tom Wheeler on Tuesday issued a statement on Charter’s announcement of its pending deal: “The FCC reviews every merger on its merits and determines whether it would be in the public interest. In applying the public interest test, an absence of harm is not sufficient. The commission will look to see how American consumers would benefit if the deal were to be approved.”
Charter said it would pay $195.71 per share for Time Warner, valuing the New York-based company at $78.7 billion. Charter would provide $100 in cash and shares of a new public parent company, “New Charter,” equivalent to 0.5409 shares of Charter, for each Time Warner Cable share outstanding.
Excluding Liberty Broadband or Liberty Interactive shareholders who would receive all stock, Time Warner shareholders will also have the option of receiving $115 of cash and New Charter shares equivalent to 0.4562 shares of Charter for each Time Warner Cable share they own.
Charter also said it made a deal to buy Bright House Networks for $10.4 billion. Charter and one of Bright House’s current parents, Advance/Newhouse, would form a new partnership of which New Charter will own about 86% and of which Advance/Newhouse will own between approximately 13% and 14%, depending on the Time Warner Cable shareholders’ cash election option described above.
In light of the the proposed deal, Moody’s Investors Service said on Tuesday that it had place Time Warner Cable on review for a possible downgrade.
“The review for downgrade reflects [Time Warner’s] intention to merge with a lower-rated and more leveraged entity, which given the financing plans which include a significant debt component, will lead to deterioration in the newly combined TWC, Charter, and Bright House’s balance sheet strength and credit metrics to a level not consistent with a family investment grade rating.”
Moody’s said the deal could leave the combined company with a pro-forma debt-to-EBITDA ratio of about 4.5x; Time Warner’s current adjusted leverage is 3.0x.
Moody’s did say, however, that it “recognizes the strategic benefits of the deal, including the potential for sizeable operating and capex synergies for the three combined companies.”
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