Charter Communications reached an agreement to take control of 3.9 million more cable-TV customers, helping Comcast ease the approval process for its merger with Time Warner Cable.
In the first step of Monday’s three-part agreement, Charter said it will buy 1.4 million Time Warner Cable customers for $7.3 billion after the merger of Comcast and Time Warner Cable closes. Charter will also form a holding company to acquire a 33 percent stake in a spinoff from Comcast that will pick up 2.5 million Comcast customers. The companies will also swap 1.6 million customers apiece.
The arrangement could help Philadelphia-based Comcast appease critics of the $45 billion takeover of Time Warner Cable by reducing the combined company’s market share to less than 30 percent. After Comcast thwarted Charter’s earlier attempt to acquire Time Warner Cable, Charter is also saving face with Monday’s transaction that will make it the second-largest U.S. cable operator. Charter shares rose the most in more than a year.
“Despite what may be some lingering bad blood between Comcast and Charter, this deal illustrates that these companies can work well together to efficiently consolidate the cable-TV industry,” said Paul Sweeney, an analyst for Bloomberg Industries.
Shareholders of Comcast and the former Time Warner Cable will own 67 percent of the new spinoff, while Stamford, Conn.-based Charter will manage the entity. The spinoff is estimated to have an enterprise value of $14.3 billion and an equity value of $5.8 billion, according to slides disclosed in a regulatory filing.
The transactions may give Comcast $10 billion to spend on share buybacks, estimated Adam Ilkowitz, an analyst with Nomura Holdings Inc., in a note Monday.
Comcast is touting the deal with Charter as a proactive concession to regulators who are reviewing its Time Warner Cable acquisition. Critics, including Minnesota Sen. Al Franken, have said that Comcast will be too large, have too much power and try to raise prices for consumers.
“This transaction today gives federal, state, and local regulatory bodies early identification of our divestiture process, which we believe should be helpful in our efforts to gain approval for our merger with Time Warner Cable,” Brian Roberts, Comcast’s chief executive officer, said on a conference call Monday.
“Today’s move should be a small but welcome gesture to regulators,” Paul Gallant, Washington-based managing director for Guggenheim Securities, said in a note Monday.
While Comcast has told lawmakers that size will help the company improve its technology and services, public-interest groups have said it will give Comcast “unprecedented” power to stifle competition and increase costs.
“This convoluted transaction may change the final tally of subscribers under the proposed merger, but it can’t change the fact that this deal is a big loss for innovation and competition,” Matt Wood, policy director for advocacy group Free Press, said in an emailed statement. “Transforming three giant companies into two behemoths gives no comfort to content providers or consumers. Lawmakers and antitrust authorities shouldn’t be fooled either.”