The acquisition, expected to be announced Tuesday, is considered more likely to clear regulatory hurdles than the recently scuttled acquisition of Time Warner Cable by
Charter, backed by cable pioneer
The proposed union of two of the Southland's biggest cable companies has the potential to break the logjam in the yearlong stalemate over distribution of the Los Angeles Dodgers' TV channel. As a goodwill gesture, Charter could quickly begin carrying the SportsNet LA channel, which is owned by the Dodgers, for its current customers in Southern California.
Such a move would enable baseball fans in Glendale, Malibu, Burbank, La Cañada Flintridge, Long Beach and other areas currently served by Charter to watch Dodgers games on SportsNet LA. Time Warner Cable has been the only major distributor in Southern California to carry the network since it launched at the start of the 2014 baseball season.
Charter and Time Warner Cable executives began negotiating the proposed acquisition soon after federal regulators signaled in late April that they would seek to block Comcast's proposed $45-billion takeover of Time Warner Cable.
"Compared to the Comcast deal, I don't think this one is likely to face nearly as much resistance," Gene Kimmelman, president and chief executive of the public interest group Public Knowledge, said in a phone interview Monday. "This proposed merger isn't nearly as big.… But there still will be important issues for the FCC to consider."
At the end of last year, Stamford, Conn.-based Charter had 6.2 million customers that opted for its Internet service, phone service or cable TV packages, or a combination of the three. Charter has more than 638,000 customers in California, according to company filings.
The merger would also give Charter, currently the nation's fourth-largest cable TV provider, a commanding presence in the New York and Dallas markets.
"Charter has promised investors it will get bigger, much bigger," said BTIG Research media analyst Richard Greenfield.
Charter's proposal calls for an offer of about $195 a share for Time Warner Cable, according to two people with knowledge of the deal who did not want to be identified discussing sensitive information. That's a 14% premium over Time Warner Cable's closing price Friday — and $10 billion richer than the Comcast offer.
The deal also has built in a $2-billion breakup fee that Time Warner Cable would receive if the transaction doesn't go through, one of these people said.
Separately, Charter is moving forward with plans to spend $10.4 billion to buy another cable company, Bright House Networks. The privately held Bright House of
With Bright House customers added to the mix, Charter would boast about 20 million subscribers — more than tripling its current reach. That amount would put it within reach of the more than 22 million customers served by Comcast, the nation's largest Internet service and cable TV provider.
But that kind of scale has at least some Time Warner Cable subscribers worried about what comes next.
"I actually like Charter — but any time you have big corporations joining together, it doesn't bode well," said John Liu-Klein, who lives in downtown L.A. and receives service from Time Warner Cable. "I don't think initially it will affect prices ... but I assume it will in the long run. In the end, you'll have a reduced number of choices and they just have you over a barrel."
Charter first approached Time Warner Cable executives in mid-2013 about the prospects of a union. Time Warner Cable early last year rebuffed Charter's offer of about $133 a share, and then reached out to Comcast as its preferred partner. Comcast agreed to offer about $158 a share.
A year ago, Time Warner Cable was wary of the amount of debt that Charter, a much smaller company, would have to take on to accomplish the acquisition. Time Warner Cable is the nation's second-largest cable provider with more than 11 million customers.
The initial bid was worrisome to credit rating firms because cable TV and Internet service providers already require billion-dollar investments to upgrade cable lines, improve set-top boxes and offer higher Internet speeds.
Malone's Liberty Media, which owns 27% of Charter shares, is expected to contribute at least $5 billion to help Charter finance the acquisition, perhaps buying more stock in the new company.
The additional customers that would come from Bright House would buttress Charter's annual revenue and operating income, which could help allay concerns among lenders that Charter was taking on too much leverage in its buying spree. Increasing its customer base would give Charter greater financial flexibility.
Charter's bid, first reported by Bloomberg News, comes after French cable billionaire Patrick Drahi appeared to be entering the picture. Drahi's company Altice held preliminary talks with Time Warner Cable, but then announced last week it would buy the smaller U.S. operator Suddenlink Communications.
The move also comes as another blockbuster combination, AT&T's $49-billion acquisition of El Segundo-based DirecTV, is close to receiving final approval from federal regulators. AT&T has said it hopes to complete its purchase of DirecTV by the end of June, which would make AT&T the nation's largest pay-TV provider with more than 25 million subscribers.
The AT&T-DirecTV deal hasn't prompted as much alarm from activists and regulators because DirecTV doesn't offer its own broadband Internet service. Comcast's bid proved too worrisome to the
Another sticking point for Comcast was its control of programming giant NBCUniversal, which owns NBC, USA, CNBC and Universal Studios. The other cable companies don't have vast programming assets.
"Still, these companies will have to demonstrate that this deal is in the public interest," said Kimmelman, a former top official in the Justice Department during President Obama's first term. "The questions will be does this drive up cable TV rates or bring them down? Will this allow Charter to offer better and faster broadband Internet service — or just inflate prices?"
Kimmelman said that a key area of scrutiny will probably be whether a bulked-up Charter would try to thwart the development of online video services, such as Netflix and
"It's critical that this proposed transaction does not interfere with this new form of Internet video competition," Kimmelman said.