On Tuesday, May 26, 2015, Charter Communications, Inc. (NASDAQ/CHTR) announced that it’s agreeing to buy Time Warner Cable Inc. (NYSE/TWC) for $55.0 billion. (Source: Charter Communications, May 26, 2015.)
Charter Communications, Inc. is an American company that provides cable television, Internet, and telephone services. It is the fourth-largest cable company in the U.S.
Time Warner Cable Inc. is a cable telecommunications company based in New York. It is the second-largest cable company in the U.S.
According to the deal, Charter Communications agrees to pay $195.71 for each share of Time Warner Cable—a 14% premium over the company’s closing price on May 22, 2015. Charter Communications will pay cash and stock for the acquisition, with its stocks valued at the closing price on May 20.
Including debt, the total value of the deal is $78.7 billion.
Shares of Time Warner Cable climbed 7.26% to $183.60, while Charter Communications gained 2.54% to $179.78 on Tuesday, May 26. Trading was closed for Monday due to Memorial Day.
Will Regulators Allow a Merge of Industry Giants?
The merge of the second- and fourth-largest cable companies in the U.S. will create a new contender to compete against market leader Comcast Corporation (NASDAQ/CMCSK).
The deal will not go through without scrutiny. The Federal Communications Commission (FCC) said early Tuesday that it would closely review the deal’s merits. Tom Wheeler, Chairman of the FCC, said “the Commission will look to see how American consumers would benefit if the deal were to be approved.” (Source: Reuters, May 26, 2015.)
Just last month, Comcast abandoned its $45.0-billion merge with Time Warner Cable.
That deal would have created a company that captures more than half of all high-speed Internet consumers in the U.S. Tom Wheeler said, “The proposed merger would have posed an unacceptable risk to competition and innovation, including to the ability of online video providers to reach and serve consumers.” (Source: The Wall Street Journal, April 24, 2015.)
The potential merge of Charter Communications and Time Warner Cable is a huge step forward in industry consolidation. Nowadays, cable companies are competing not only amongst themselves, but also with online video streaming giants like Netflix, Inc. (NASDAQ/NFLX) and Hulu.
The deal would be great for the two companies as there will be less competition in the industry. At the same time, the deal will face anti-trust concerns from regulators. We have already seen the Comcast and Time Warner Cable deal fail last month. Regulators probably do not want this type of deal to happen. Therefore, investors should not immediately jump on the news without an understanding of potential outcomes.