Charter to Buy Bright House for $10.4B

Charter Communications started the cable consolidation wave a little early, agreeing to buy Bright House Networks in a deal valued at about $10.4 billion.

News of the deal comes a few weeks after speculation that the two were talking about a deal first surfaced. By agreeing to buy Bright House, which has about 2 million customers in Florida, California, Alabama, Indiana and Michigan, Charter removed the cloud surrounding the Advance-Newhouse owned cable company after its partner, Time Warner Cable, is acquired by Comcast. Bright House buys its programming under the same deals as TWC. There was some doubt as to whether that agreement would continue after the Comcast deal is closed.

The agreement, which will take place after Comcast completes its $67 billion TWC acquisition, also is a signal that the parties are confident a transaction will be consummated. Analysts had lowered the odds that the deal would receive Federal Communications Commission approval to about 50-50 after consumer groups and regulators blasted the deal.

The business will be conducted through a partnership (the "Partnership") of which Charter will own 73.7%, and of which Advance/Newhouse will own 26.3%. The consideration to be paid to Advance/Newhouse by New Charter will include common and convertible preferred units in the Partnership, in addition to $2 billion in cash. The partnership units owned by Advance/Newhouse will be exchangeable for common shares of New Charter. The deal is subject to several conditions, including Charter shareholder approval, the expiration of Time Warner Cable's right of first offer for Bright House, the close of Charter's previously-announced transactions with Comcast and regulatory approval.

"Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility," said Charter CEO Tom Rutledge In a statement. "Bright House has built outstanding cable systems in attractive markets that are either complete, or contiguous with the New Charter footprint. This acquisition enhances our scale, and solidifies New Charter as the second largest cable operator in the US. I look forward to working with the Bright House team, whom we have known for years, in delivering great products and services to grow our market share."

Steven Miron, Chief Executive Officer of Bright House Networks added, "We are excited about our transaction with Charter. At Bright House Networks, we are very proud of what we have achieved - from the quality of our infrastructure to the level of service our employees provide to customers every day. We share the same vision for the future of our business as Tom and the Charter leadership team, which is to gain market share by offering customers competitive products and excellent service at a tremendous value. Also, our family has known and worked with Tom Rutledge for more than 20 years. Tom managed cable systems that were part of our partnership with Time Warner Cable prior to the formation of Bright House Networks. We think the combination with Charter gives our employees, our customers and Advance/Newhouse the strongest prospects for the future."

Liberty Broadband, which owns about 27% of Charter stock, has agreed to purchase, upon closing of the Bright House transaction, $700 million of newly issued New Charter shares at the Reference Price. On an as-converted basis of its exchangeable partnership units, and including the impact of both the issuance of shares to acquire 33% of GreatLand Connections Inc. and Liberty Broadband's purchase of new shares, Advance/Newhouse is expected to own 26.3% of New Charter's outstanding common shares, and it is expected that Liberty Broadband's equity ownership will represent 19.4% of New Charter's outstanding common shares.

In connection with the transaction, Advance/Newhouse has agreed to grant Liberty Broadband a voting proxy on its shares, capped at 6%, for the five years following the close of the transaction, such that Liberty Broadband would have total voting power of an anticipated 25.01% at closing. The proxy excludes votes on certain matters.

At the close of the transaction, New Charter's Board of Directors will consist of 13 directors, including three directors designated by Advance/Newhouse and three directors designated by Liberty Broadband.

Goldman Sachs and LionTree Advisors are serving as financial advisors to Charter in connection with this transaction. Wachtell, Lipton, Rosen & Katz is acting as counsel to Charter and Kirkland & Ellis LLP is advising Charter on financing.

UBS Investment Bank is serving as exclusive financial advisor to Advance/Newhouse Partnership and Bright House Networks LLC, and Sabin, Bermant & Gould LLP and Sullivan & Cromwell LLP are acting as legal advisors.

"We're never fans of cable consolidation, and today's acquisition would change the provider for millions of people, but this deal on its own wouldn’t raise too many concerns," said Free Press policy director Matt Wood on news of the planned meld. But the Charter/Bright House deal is contingent on Comcast/TWC getting approved, and that should not happen, says Wood, whose group has been pushing back hard on that deal.

"[I]n conjunction with the Comcast-Time Warner Cable deal, and with the resulting spin-off from that previously announced merger of the new company jointly controlled by Comcast and Charter, this all does raise concerns about the national market power held by the shrinking number of large cable operators and broadband providers. That's why the FCC and the antitrust authorities need to deny disastrous mega-mergers like Comcast-Time Warner Cable first and foremost."

John Eggerton contributed to this report