Charter Communications shares hit a 52-week high today after it reported that the nation’s No. 4 cable operator has agreed pay $10.4 billion for Bright House Networks, which has about 2 million subs concentrated in Florida, California, Alabama, Indiana and Michigan.
The companies plan to forge a partnership: Charter will pay $2 billion in cash, plus common and convertible preferred stock, for a 73.7% stake. Bright House owner Advance/Newhouse will control the remaining 26.3%. When the deal closes, Charter’s biggest shareholder — John Malone’s Liberty Broadband — will pay $700 million for 19.4% of the partnership’s stock.
When the dust settles, the Charter will control seven of the 13 seats on the new entity’s board. Advance/Newhouse and Liberty Broadband will each have three seats.
The deal is contingent on federal approval of Comcast’s acquisition of Time Warner Cable — which includes a side agreement to sell and swap systems with Charter. TWC also would have to give up its right of first refusal for Bright House, a term left over from the breakup of their partnership in 2003. TWC negotiates most of Bright House’s programming carriage deals.
“Bright House provides Charter with important operating, financial and tax benefits as well as strategic flexibility,” Charter CEO Tom Rutledge says. The arrangement “solidifies New Charter as the second largest cable operator in the U.S.”
Malone, has said that he’d like Charter to bid for TWC if federal officials thwart the Comcast merger. He has also said that, if Comcast and TWC combine, then Charter would have the financial wherewithal to go after smaller companies. Its stock has appreciated 58% over the last 12 months.
If TWC’s deal with Comcast collapses, and it wanted to fend off Charter, then taking on debt to buy Bright House might be a play.
Charter and Bright House execs say that they’re confident that Comcast and TWC will wed without a hitch — clearing the way for their partnership. The combination “gives our employees, our customers and Advance/Newhouse the strongest prospects for the future,” Bright House CEO Steven Miron says.
Goldman Sachs and Liontree Advisors helped Charter to craft the deal, with Wachtell, Lipton, Rosen & Katz providing legal counsel and Kirkland & Ellis offering financial advice. The Bright House team included UBS Investment bank, plus law firms Sabin, Bermant & Gould and Sullivan & Cromwell.