Can Charter Afford to Acquire Both Time Warner Cable and Bright House?

Charter also said that it has amended the terms of its deal to acquire Bright House Networks, the nation’s sixth-largest cable company, from Advance/Newhouse Partnership for $10.4 billion. Prior to the announcement of the acquisition of Time Warner, the consummation of Charter’s acquisition of Bright House depended on the now-defunct merger between Time Warner and Comcast Corp. (NASDAQ: CMCSA).

With a total of 23.9 million customers, the combination of Charter, Time Warner and Bright House will become the second largest cable provider in the United States, trailing only Comcast.

The deal for Bright House will cost Charter $2 billion in cash plus a stake of about 25% for Advance/Newhouse in a new partnership to which Charter will contribute substantially all its assets, including Time Warner Cable. Advance/Newhouse will contribute all of Bright House.

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Liberty Broadband Corp. (NASDAQ: LBRDA) will pay $4.3 billion for new shares in the New Charter company that will be formed from the merger of Charter and Time Warner Cable. Liberty Broadband will purchase another $700 million in New Charter shares when the Charter-Advance/Newhouse deal is closed.

Charter reported total debt of $21 billion at the end of the March quarter, of which $7 billion is debt with proceeds held in escrow to be used to finance the company’s previous transactions with Comcast. Charter reported $20 million in cash and equivalents and approximately $875 million in credit availability. Charter’s debt is going to rise steeply if this deal goes through.

The deal between Charter and Time Warner still must pass the regulatory review that derailed Time Warner’s deal with Comcast. This one has a better chance of passing muster, even though it will be only slightly less anti-competitive than the rejected deal.

Analysts appear to agree that Charter and Liberty chief John Malone are both getting what they wanted: scale to compete with Comcast on content pricing. Exactly how the deal fits in with the slow decline in cable subscribers is less discussed. One might take the view that this deal appears to be nothing more than two dinosaurs cooperating to rule a world that may not exist for much longer.

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