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Charter's Communication Merger With Time Warner Cable And Acquisition Of Bright Networks

11 October 2015 |


Charter Communications, a cable communications company, has announced definitive plans to merge with Time Warner Cable. The deal values Time Warner Cable at $78.7 billion (it was also announced that Charter Communications would acquire Bright Networks for $10.4 billion). As part of the deal a new parent company will be created called "New Charter. " Charter Communications provided two options to the shareholders of Time Warner Cable.

Option 1

Charter pays $100 in cash and New Charter shares which are equal in value to 0.5409 shares in Charter Communications, for each Time Warner Cable share.

Option 2

Charter pays $115 in cash and New Charter shares which are equal in value to 0.4562 shares of Charter Communications, for each share of Time Warner Cable.

The transaction must however be cleared by the Federal Communications Commission (FCC). If the deal is approved, the combined companies' services will be provided under the brand name "Spectrum. "

Why Are They Doing It?

Aggressive expansion into the market for the provision of broadband services is at the core of this transaction. The combination of Charter Communications, Time Warner Cable and Bright Networks is expected to create a company servicing 23.9 million customers in 41 US states. This would make the combined company the second largest player in the market (behind Comcast). The deal would also give the combined company scale and breadth, as the different constituent companies are strong in different regions of the USA. Bright Networks has a strong customer base in the state of Florida. Time Warner Cable has a strong customer base in Texas, Ohio, Minnesota, New York and Maine. Charter Communications has a strong customer base in Michigan, Wisconsin, Alabama, Georgia, Tennessee and North Carolina. Having exposure to a large number of states is beneficial, as the combined company would be able to spread its risk, as opposed to being overly exposed to the economy of any particular state.

The executives of both companies suggested that the acquisitions would create a stronger company that would offer faster services (therefore appealing to those looking to watch online videos and play online games), as well as out-of-home wireless internet options. Some online streaming companies have announced support for the transaction, and in return Charter has agreed not to charge streaming companies for providing their consumers with faster Internet access until at least December 31st 2018 (Bloomberg). This is particularly important for companies such as Youtube, Netflix and HBO.

Investment banks Goldman Sachs and Liontree Advisors served Charter as lead advisors. Charter was also supported by Guggenheim Securities, Bank of America Merrill Lynch, Credit Suisse and UBS. Law firms Wachtell, Lipton, Rosen & Katz and Kirkland & Ellis advised Charter.

Investment banks Morgan Stanley, Allen & Company and Centreview Partners advised Time Warner Cable. Law firms Paul, Weiss, Rifkind, Wharton & Garrison LLP, Latham & Watkins LLP and Skadden, Arps, Slate, Meagher & Flom LLP advised Time Warner Cable.

UBS served Bright Networks as exclusive financial advisor. Sabin, Bermant & Gould LLP and Sullivan & Cromwell LLP acted as legal advisors.